First Real Estate Investment - Multifamily 4 Flex

Sacramento, California
Multi-Family and Apartment Investing
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First Real Estate Investment - Multifamily 4 Flex

Fong Xiong
Member since 2023 · 16 posts · 11 votes

First off my name is Fong, I'm 29 years old, I'm very new here. I have been listening to David and Rob for weeks on end on their podcast on my commute to work and have read through a few books from Brandon Turner and it has given me hopes on eventually being able to escape my 9-5 job. Have bought many other books in preparations from other successful investor such as David and Rob but in the saying of Brandon, "it doesn't matter how many books I read but if I don't take any actions it's all doesn't lead anywhere." So here's me taking my first big step to financial freedom. I also apologize in advance but I'm really "green" in regards to real estate and not 100% confidence yet in my capabilities but I have chance upon a opportunity on this property that I'm looking to give it a shot.

Long story short, I chanced upon a 4plex multifamily home with 16bds 8ba near where i went to college and it's a few block from the University. The avg rent around the surrounding areas are about 1700-2200 for a 4bed 2ba apartment.

PP asking is $620,000 at 4% IR

Using the Rental Property tool I would cash flow about $1600 monthly after all expenses and with a CoC ROI of 9%.
I would need about $20-30K rehab: new carpets, new paints inside, new tiles.

My inquiries is, what are some creative finance idea could I pitch to the seller and his agent in regards to his equity of the property which is about $70k if they are willing to do a subject to deal for the property?

In what ways can I structure a deal that would still make a profitable cash flow if I have the owner seller finance me the $70K? Or should I just outsource for a private money loan for the 70K?

Thanks in advance for any tips and advice!

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Arif Sheikh
Investor · Baltimore · Member since 2023 · 18 posts · 11 votes
3y
Quote from @Fong Xiong:

First off my name is Fong, I'm 29 years old, I'm very new here. I have been listening to David and Rob for weeks on end on their podcast on my commute to work and have read through a few books from Brandon Turner and it has given me hopes on eventually being able to escape my 9-5 job. Have bought many other books in preparations from other successful investor such as David and Rob but in the saying of Brandon, "it doesn't matter how many books I read but if I don't take any actions it's all doesn't lead anywhere." So here's me taking my first big step to financial freedom. I also apologize in advance but I'm really "green" in regards to real estate and not 100% confidence yet in my capabilities but I have chance upon a opportunity on this property that I'm looking to give it a shot.

Long story short, I chanced upon a 4plex multifamily home with 16bds 8ba near where i went to college and it's a few block from the University. The avg rent around the surrounding areas are about 1700-2200 for a 4bed 2ba apartment.

PP asking is $620,000 at 4% IR

Using the Rental Property tool I would cash flow about $1600 monthly after all expenses and with a CoC ROI of 9%.
I would need about $20-30K rehab: new carpets, new paints inside, new tiles.

My inquiries is, what are some creative finance idea could I pitch to the seller and his agent in regards to his equity of the property which is about $70k if they are willing to do a subject to deal for the property?

In what ways can I structure a deal that would still make a profitable cash flow if I have the owner seller finance me the $70K? Or should I just outsource for a private money loan for the 70K?

Thanks in advance for any tips and advice!


Hello Fong,

Welcome to the world of real estate investing! It's great to see your enthusiasm and determination to take the first steps towards financial freedom. Your interest in creative financing is a smart approach, and it's important to explore various options to make your real estate investments profitable.

Regarding your potential 4plex multifamily deal, here are some creative financing ideas you can consider:

  1. Seller Financing: You mentioned the possibility of the owner providing seller financing for the $70,000. This can be an excellent option if the seller is open to it. You could propose a seller carry-back mortgage where you make regular payments to the seller instead of a traditional lender. Negotiate favorable terms, such as a lower interest rate or longer repayment period, to improve cash flow.
  2. Subject-To: Subject-to deals involve taking over the existing financing on the property "subject to" the existing mortgage. If the seller has a low-interest rate loan, you might consider taking over their mortgage payments and assuming the loan. Be sure to consult with a real estate attorney or expert to navigate subject-to transactions effectively.
  3. Private Money Loan: If seller financing doesn't work out or isn't available, you can explore private money lenders for the $70,000 rehab and any down payment required. Private lenders might offer more flexible terms compared to traditional banks.
  4. Hard Money Loan: Another option for financing the rehab portion is a hard money loan. These loans are typically short-term and come with higher interest rates, but they can be a quick way to secure funds for renovations.
  5. Partnership: Consider partnering with an experienced investor who can provide the necessary capital in exchange for a share of the profits. This can be an effective way to tap into someone else's resources and knowledge while sharing the risks and rewards.
  6. Lease Option: You could propose a lease option agreement with the seller, where you lease the property with the option to purchase it at an agreed-upon price in the future. This can give you time to build equity and secure financing.
  7. Seller's Second Mortgage: In addition to seller financing, you can negotiate a second mortgage with the seller for a portion of the purchase price. This can help bridge the financing gap and reduce the amount you need to borrow elsewhere.

Remember to conduct thorough due diligence on the property, including a detailed inspection and analysis of the local market conditions. It's also crucial to consult with legal and financial professionals to ensure any creative financing strategies comply with local laws and regulations.

Lastly, continue educating yourself through resources like BiggerPockets and networking with experienced investors in your area. Your willingness to take action and explore creative financing options is a promising start to your real estate investing journey. Best of luck with your deal!


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  • Noah Laker
    Real Estate Broker · Sacramento, CA · Member since 2021 · 516 posts · 408 votes
    3y

    Hey Fong, welcome to the crew brother and congrats on making the decision to jump in. I'm a local real estate broker / investor (7 doors) / property manager (100+ Airbnbs) here in Sacramento. 

    My issue with "Subject-To" is that it's quickly become a buzz term, but the fact is that sellers of decent properties have no incentive to offer this as an option. Properties are still selling fast and above asking price. If a seller is even willing to offer this, it begs the question, why can't they just sell the property on the conventional MLS?

    With that being said, it's always worth a conversation. You can write a deal any number of ways- for example, give him $640k instead of 620, but in return he carries that 70k at a lower interest rate to blend your hard money or other financing to a lower overall rate. 

    FYI- hard money is to be avoided as much as possible. Very high fees and interest, and if you miscalculate early on and fail to pay it off, you'll expose yourself to risk at expiration. 

    Hope this helps. 

    2Reply
  • Arif Sheikh
    Investor · Baltimore · Member since 2023 · 18 posts · 11 votes
    3y
    Quote from @Fong Xiong:

    First off my name is Fong, I'm 29 years old, I'm very new here. I have been listening to David and Rob for weeks on end on their podcast on my commute to work and have read through a few books from Brandon Turner and it has given me hopes on eventually being able to escape my 9-5 job. Have bought many other books in preparations from other successful investor such as David and Rob but in the saying of Brandon, "it doesn't matter how many books I read but if I don't take any actions it's all doesn't lead anywhere." So here's me taking my first big step to financial freedom. I also apologize in advance but I'm really "green" in regards to real estate and not 100% confidence yet in my capabilities but I have chance upon a opportunity on this property that I'm looking to give it a shot.

    Long story short, I chanced upon a 4plex multifamily home with 16bds 8ba near where i went to college and it's a few block from the University. The avg rent around the surrounding areas are about 1700-2200 for a 4bed 2ba apartment.

    PP asking is $620,000 at 4% IR

    Using the Rental Property tool I would cash flow about $1600 monthly after all expenses and with a CoC ROI of 9%.
    I would need about $20-30K rehab: new carpets, new paints inside, new tiles.

    My inquiries is, what are some creative finance idea could I pitch to the seller and his agent in regards to his equity of the property which is about $70k if they are willing to do a subject to deal for the property?

    In what ways can I structure a deal that would still make a profitable cash flow if I have the owner seller finance me the $70K? Or should I just outsource for a private money loan for the 70K?

    Thanks in advance for any tips and advice!


    Hello Fong,

    Welcome to the world of real estate investing! It's great to see your enthusiasm and determination to take the first steps towards financial freedom. Your interest in creative financing is a smart approach, and it's important to explore various options to make your real estate investments profitable.

    Regarding your potential 4plex multifamily deal, here are some creative financing ideas you can consider:

    1. Seller Financing: You mentioned the possibility of the owner providing seller financing for the $70,000. This can be an excellent option if the seller is open to it. You could propose a seller carry-back mortgage where you make regular payments to the seller instead of a traditional lender. Negotiate favorable terms, such as a lower interest rate or longer repayment period, to improve cash flow.
    2. Subject-To: Subject-to deals involve taking over the existing financing on the property "subject to" the existing mortgage. If the seller has a low-interest rate loan, you might consider taking over their mortgage payments and assuming the loan. Be sure to consult with a real estate attorney or expert to navigate subject-to transactions effectively.
    3. Private Money Loan: If seller financing doesn't work out or isn't available, you can explore private money lenders for the $70,000 rehab and any down payment required. Private lenders might offer more flexible terms compared to traditional banks.
    4. Hard Money Loan: Another option for financing the rehab portion is a hard money loan. These loans are typically short-term and come with higher interest rates, but they can be a quick way to secure funds for renovations.
    5. Partnership: Consider partnering with an experienced investor who can provide the necessary capital in exchange for a share of the profits. This can be an effective way to tap into someone else's resources and knowledge while sharing the risks and rewards.
    6. Lease Option: You could propose a lease option agreement with the seller, where you lease the property with the option to purchase it at an agreed-upon price in the future. This can give you time to build equity and secure financing.
    7. Seller's Second Mortgage: In addition to seller financing, you can negotiate a second mortgage with the seller for a portion of the purchase price. This can help bridge the financing gap and reduce the amount you need to borrow elsewhere.

    Remember to conduct thorough due diligence on the property, including a detailed inspection and analysis of the local market conditions. It's also crucial to consult with legal and financial professionals to ensure any creative financing strategies comply with local laws and regulations.

    Lastly, continue educating yourself through resources like BiggerPockets and networking with experienced investors in your area. Your willingness to take action and explore creative financing options is a promising start to your real estate investing journey. Best of luck with your deal!


    2Reply
  • Fong Xiong
    OP
    Member since 2023 · 16 posts · 11 votes
    3y

    Probably something I had totally forgotten to mention is, it has been listed for over 60 days. So I figured the seller might be intrigue in the idea of me taking over the mortgage. The idea cross my mind that I could cash him his equity of $70K, but times and times again I hear cash is king whether in podcast or any RE books I have read, due to how much opportunity cash could do for me in RE. 

    So I thought it might've been a good idea to put that cash in reserve in case of vacancy, capex and etc. early on into my investment. Or potentially invest it into another property once my first investment was a success. 

    And my incentives that they would be willing to do a subto was:
    -Their equity on the property is 70K, his closing cost would be around roughly 31K
    -And roughly around another 5-7% for his agent fee through a traditional sale. And not accounting for any non-negotiable expenses that would eat their net proceeds. 
    -They would have a higher net proceeds from just letting me take over the mortgage plus interest on top depending on terms. 

    Also please forgive my inexperience, I'm just kind of throwing things out from what I read from books or listening to podcast. And they may not be particularly correct. 

    Also thank you for the information and suggestion Noah! If you ever need any help, although I'm inexperience, I'm dedicated and willing to help for free to build experience and knowledge towards the craft of RE investing. 

    0Reply
  • Fong Xiong
    OP
    Member since 2023 · 16 posts · 11 votes
    3y

     Thank you Arif!
    Those are some great things I have also considered. One of your last comments in regards to due diligence is also of my concern. Due to my inexperience, I'm not 100% sure I've done all research and appraisal of the property. Mostly in concerns of rehab and repair cost due to my unfamiliarity of the craft. 

    1Reply
  • Michael SmytheBusiness Member
    Real Estate Agent · Metro Detroit · Member since 2023 · 4k+ posts · 3k+ votes
    3y

    60 days isn't that long.

    Keep an eye on it and wait until 120 days.

    Logical Property Management4.9446 Reviews
    WebsiteView Page
    1Reply
  • Zachary Ware
    Member since 2022 · 405 posts · 455 votes
    3y

    Sounds like a great deal and I agree with others that the seller really needs a pain point for "Subject To". They need to get rid of a property or get the burden of the current mortgage offloaded as soon as possible, with many of these sellers facing foreclosure. This sounds like a deal that a private lender/friend/family would be helpful on. 

    1Reply
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