Need some help with financing and navigating my first deal
I have been interested in real estate my whole life, but was always too scared to start my own journey.
Last week I came to realize that the shift in the market with the interest rates going up may be the perfect time for me.
I have been listening to 2-3 podcasts a day and I really enjoyed the episode with Pace Morby, who used creative financing to get 300 doors.
Since then I started to contact some agents in Las Vegas and they sent me a couple interesting deals that caught my attention.
I found a 9 unit that's only collecting $3,500 in rent with one vacant unit and one unit used by the property manager.
Projected Market rent in the area is around $9,000 for the 9 units with a mix of 1 bed 1 bath and 2 bed 1 baths.
with the Projected market rent the deal would be well within the 1% rule for income properties.
I already asked if the seller is interested in seller financing, but she is not open to the idea.
What is the best way to reach out to the seller to discuss if seller financing is beneficial for her or not?
Also my main problem with investing at the moment is that I do not have a regular job, and my credit score is in the mid 500's.
I have a couple friends that I can bring into the deal that have good credit with high paying jobs.
What's the best course of action here? would really appreciate any input and help for new investor just starting out.
I understand that I can start with cheaper investments, but I think if the numbers make sense I can really make this deal happen.
Thanks in advance!
First of all if they’re expressing that they were not interested in owner financing, that’s fine, but ask them if not cash, what’s their preference? Some look for all cash buyers while many will accept financing. Find out what other reservations they have. In end, find out as much information as you can. You’re establishing rapport, trust, and developing a great understanding. As for raising funds and having partners, decide what role you’re going to have if you don’t bring the capital or the credit worthiness. What can you offer?
Quote from @Aaron Kim:
I have been interested in real estate my whole life, but was always too scared to start my own journey.
Last week I came to realize that the shift in the market with the interest rates going up may be the perfect time for me.
I have been listening to 2-3 podcasts a day and I really enjoyed the episode with Pace Morby, who used creative financing to get 300 doors.
Since then I started to contact some agents in Las Vegas and they sent me a couple interesting deals that caught my attention.
I found a 9 unit that's only collecting $3,500 in rent with one vacant unit and one unit used by the property manager.
Projected Market rent in the area is around $9,000 for the 9 units with a mix of 1 bed 1 bath and 2 bed 1 baths.
with the Projected market rent the deal would be well within the 1% rule for income properties.
I already asked if the seller is interested in seller financing, but she is not open to the idea.
What is the best way to reach out to the seller to discuss if seller financing is beneficial for her or not?
Also my main problem with investing at the moment is that I do not have a regular job, and my credit score is in the mid 500's.
I have a couple friends that I can bring into the deal that have good credit with high paying jobs.
What's the best course of action here? would really appreciate any input and help for new investor just starting out.
I understand that I can start with cheaper investments, but I think if the numbers make sense I can really make this deal happen.
Thanks in advance!
The seller, if they're a match for what you are looking for (& they may not be), wants regular passive no-hassle monthly income. And that amount can be less than what they or you "could" get from fixing up that property and turning it over, and we know that's true, because if they were interested in doing that work for the largest monthly income, they'd have already done it. They didn't do that work, they don't want to do work (that's the One Big Thing that jumped out at me from your post, and what the rest of this basically feeds into), they just want to cash a check every month. That's where you come in. You're going to make this easy on them, the most hassle free decision or thing they've ever done, certainly easier than dealing with placing tenants and fixing a broken oven!
So, you're going to offer them what they want. You're going to do the work, to make it easy for them (recurring theme alert!). You're going to pick some number greater than what they're currently getting from the property, but less than what you expect you will be getting (factoring in of course risk, effort, expenses, and so on), and you're going to take out a financial calculator (I'm fond of the HP-12C) to turn that into a menu of terms, fees, and interest rates. And just like any good restaurant, you're going to do the work up front, to promulgate a menu that makes it easy for the customer to shop between options, all of which look excellent (don't put stupid overpriced low quality things on your menu), without having any menu items that don't also work for you as the restaurant. 30 year term at this rate, 25 at that one, maybe some with higher upfront fees and others with lower, and so on, we have a wide variety of excellent wines, you could also present that entire menu, but advise on which 2 or 3 might be the most appealing to go with their steak (we took something confusing, and did the work to make it easy). But the entire menu needs to be things that work well for you and your goals, while also looking appealing to your restaurant's 'customer.'
The fact that the monthly check you write is less than the monthly checks you deposit, in exchange for you doing some "work," is where you stand to make a profit. Arbitrage.
Amazon dot com does not care what I buy on amazon dot com, they care that I'm buying it on amazon dot com. Go be amazon. Give them their menu. Insert some random 3rd metaphor here.
Good luck.
BTW: realtors do not like seller financing because it often winds up translating into them not getting paid at the closing table. Set aside 6% to address that.
(Sorry, I couldn't figure out quoting part of your post so OP is in italics.)
I already asked if the seller is interested in seller financing, but she is not open to the idea.
I would find out what her motivation for selling is and what she's going to do with the cash. This will help you know if it's even reasonable to continue any discussion of seller financing. If, for example, she's using it to pay off or buy a house to retire and reduce her expenses, it's probably not worth your time to continue that discussion.
my main problem with investing at the moment is that I do not have a regular job, and my credit score is in the mid 500's.
You're going to need those friends or have a very significant cash position you can bring to the table, especially since it sounds like seller financing is off the table. I think your next step should be to figure out how you'll get a deal funded before trying to find one. I know the podcasts sometimes mention finding a deal first and then you can figure out the financing, but I believe that often comes from a position of experience in knowing when you've found a home run deal that's a no brainer, and having the network that knows you and is ready to support those deals at any time.
Good luck
you didn't "find" this deal, an agent sent it to you.
is it on market or off?
seems like a lot to try to make work for your first. there's no way to know from the info you provided if it's a "deal" or not.
have you considered house hacking? do you already own a primary?
i'd focus on improving your credit score. RE isn't going anywhere.
Quite honestly, you might want to consider getting a regular job and working on your credit score/history. This is real estate INVESTING, not a real estate job. You invest with funds and credit that you have...
That being said, if a real estate agent sent you this lead, why are you contacting the seller directly? I guess you don't like your agent or you just like abusing them? The seller really shouldn't be talking to you unless they will refer you back to their agent later. With an on-market lead, you really should work within the system. Show that you are serious and a professional...
Honestly, you are going to have to look at investing with your friends that have funds, income, and credit score/histories. Even for seller financing, the seller SHOULD do their due diligence on you to make sure you can pay. To my understanding, done "correctly" a seller financed Note should also be underwritten as I've looked into it.
I think its been mentioned, but you REALLY need to figure out your financing / funding situation FIRST. You can't go shopping for something, or anything, and not know what is your budget or how much you can afford. Well, I guess you could but that's a surefire way to get in over your head. for example, would you really go around shopping for new luxury cars priced over $100k when you can really only afford some used Honda or something? Be serious... If you can't afford it or put together the financing, there is no deal to be made. I agree there are approaches to be "creative" to make the deal, but you have to have the means. Making deals and being creative only works when you have the means to "maneuver."
Otherwise, you need to figure out the seller's motivations and needs/desires. If they don't want to hold the Note, they aren't going to want to. It might simple to you, or really your only option, but there is plenty of risk to the seller to hold the Note. A simple transaction where they walk away with a pot of cash is much simpler, and no risk... To negotiate a deal, you need to find a solution that is a win for both parties, not just you.
Good luck.
Hey @Aaron Kim , in my kind of newbie opinion, you have to learn a lot from this, know how to run numbers to see if it's a good deal or not, get connections and network, and then start looking for properties, it's a long process but it will be worthy. I hope this help.
@Aaron Kim In my opinion the best option is to focus on increasing your credit score and income in order to qualify for a loan on your own. I would also stay away from creative financing unless it somehow is a way to receive a better interest rate and terms... The best way to engage with a seller is to write an offer.