how can I buy a multi-family without using any cash or credit,
Rental Property Investor · Chicago, IL · Member since 2014 · 103 posts · 2 votes
How can I buy a multi-family without using any cash or credit, and cashflowing. i live in south suburbs Tinley park ,Illinois and Im looking to purchase a multi-family building , live in one side and rent the other sides our for positive cashflow, please let me know what creative ways can I use to fund the deal. I am looking for multifamily building like 3 and 4 units purchase price plus my rehab needs to be 200,000 and the goal is to rent out the the others units and get income where I would possibly be cashflowing or living for a minmal cost. I love the fact of multi-family housing. Please send private lenders and hard money lenders or referrals my way I appreciate !
LOL, the only way to acquire a property with no credit extended or cash is to have it given to you or trade for it.
Joe's master lease is a good solution, but understand, a lease or promise to pay future payments is an extension of credit!
The time wasted with pipe dreams and how to get something for nothing you can actually learn the basics of real estate, the business, not how to move shells around for some convoluted ploy that in reality is likely never to materialize. Elephant hunting with a sling shot.
Reality check: If you owned an apartment building would you let someone off the street with no RE track record lease your entire building with no money or credit and allow them to manage it all along giving them an ownership interest? Really???
Land, labor, capital and entrepreneurship, no business transaction takes place without 3 of these 4 functions. You can substitute any one of these functions for another function but you can never substitute land, it will always be on of the 3 functions. Land doesn't have to be the subject of the transaction, but you'll always be located someplace to conduct business, even if it's at your kitchen table on the phone.
Learn the basics or RE and what makes RE valuable, then how to manage those functions to facilitate a transaction, if you have no capital it will take labor and management to make up for the lack of money. You can't provide labor without skills and you can't manage without an education in that industry. BTW, guru junk is not an education in RE.
Gurus show techniques to use in RE.
There are many ways to bail out a sinking boat. You need to understand what makes the boat float to chose the right method to employ keeping the boat from sinking, use the wrong method and you're most likely sunk! :)
You can do an FHA loan. 3.5% down is pretty close to no money down.
@Anthony Kondor you could do a Master Lease with Option to Purchase and negotiate 0% down payment. It's not likely but it's possible that the owner would do that.
@Anthony Kondor you could do a Master Lease with Option to Purchase and negotiate 0% down payment. It's not likely but it's possible that the owner would do that.
Anthony, thanks for this tip. I found this definition of the master lease online and wanted your elaboration on how it works: http://financial-dictionary.thefreedictionary.com/...
From what I'm seeing, I would negotiate a master lease with the owner for 0% down with the owner getting X a month. By him/her agreeing to the master lease, the leases that he currently has to the other tenants of the building would now become subject to my lease.
The questions I have are as follows:
@Dominic Jones here you go:
1. As with any lease, you have to adhere to the lease terms but after the lease is up with the tenants you can increase rent, update terms, etc.
2. you do not have to be a tenant to do a master lease on a multifamily property
3. a master lease is basically a lease to own agreement - you lease until you own it (or decide to walk away which usually is a bad option for the buyer)
I did a Master Lease on a large 150+ apt community and it's working out quite well. I put about 20% down (by raising the money) but we had a decent amount of equity going into it and there was upside (i.e. opportunity to increase value by increasing income and/or lowering expenses).
How can I buy a multi-family without using any cash or credit, and cashflowing. i live in south suburbs Tinley park ,Illinois and Im looking to purchase a multi-family building , live in one side and rent the other sides our for positive cashflow, please let me know what creative ways can I use to fund the deal. I am looking for multifamily building like 3 and 4 units purchase price plus my rehab needs to be 200,000 and the goal is to rent out the the others units and get income where I would possibly be cashflowing or living for a minmal cost. I love the fact of multi-family housing. Please send private lenders and hard money lenders or referrals my way I appreciate !
I don't understand what you mean by "my rehab needs to be 200k," are you talking about the ARV?
If you are looking to live in one of the units and rent out the rest then yes, I would do whatever it takes to get the FHA loan. I don't know if you've ever came across this part of the site: http://www.biggerpockets.com/mortgage/fha-loans/ but it should help you get started. From what I've heard it's a little bit of a hassle but in regards to doing it as an investment to not only a) live for free but to also b) cashflow, I would suspect that you would be willing to do whatever it takes.
When you get approved for the loan, in regards to getting the 3.5% I would market your plan to private lenders. Have you gone to your local REIA and started networking with investors in your area?
My proposed plan would have all the numbers for the deal, the list of repairs that are required and quotes that you've acquired for the work to be done. I would gather and collect the comps to find the ARV and new projected profit / loss statement after the repairs are done. You should know what the market rents in the area are going at and decide what you want to get per unit. This would help project for the lenders how long it will take to get their return. When you get the 3.5% down payment & interest paid you should start taking off.
I learned all of this from BiggerPockets, haven't done a deal myself yet, but would do all of what I just explained to you if I knew I was going to live in a multi-unit. I am planning on leaving the country sometime next year so I wouldn't qualify for a FHA loan since you have to live in the building for a certain number of years and I couldn't fill that requirement at this time.
@Dominic Jones here you go:
1. As with any lease, you have to adhere to the lease terms but after the lease is up with the tenants you can increase rent, update terms, etc.
2. you do not have to be a tenant to do a master lease on a multifamily property
3. a master lease is basically a lease to own agreement - you lease until you own it (or decide to walk away which usually is a bad option for the buyer)
I did a Master Lease on a large 150+ apt community and it's working out quite well. I put about 20% down (by raising the money) but we had a decent amount of equity going into it and there was upside (i.e. opportunity to increase value by increasing income and/or lowering expenses).
That's awesome... Alright, perfect opportunity for me to ask!
In your ending summary paragraph you state that "we had a decent amount of equity going into it." By this you mean that the original owner had already paid down a considerable amount of the mortage on the property?
This has been a gray area of understanding for me but I think it means that the mortgage is less than its original value, for instance, a house that is free in clear has 100% equity? Please correct me if I'm wrong.
@Dominic Jonesglad it helped.
Re: equity, I was referring to the agreed upon purchase price ($6.35M) was lower than what it was worth at the time of closing the master lease ($6.7M). And, if there's upside in the deal, in this one there is, then if operating correctly the worth of the property should increase (all other things being equal).
Basically you're agreeing to pay today's value (or less) with tomorrow's dollars and tomorrow's value.
found this podcast "How to get Private Lenders to FUND 100% of your next deal" on @Joe Fairless's website: http://joefairless.com/blog/podcast/jf218-how-to-g...
Haven't listened to it yet, but I plan on doing so. Think it may be useful for you as well.
@Dominic Jonesglad it helped.
Re: equity, I was referring to the agreed upon purchase price ($6.35M) was lower than what it was worth at the time of closing the master lease ($6.7M). And, if there's upside in the deal, in this one there is, then if operating correctly the worth of the property should increase (all other things being equal).
Basically you're agreeing to pay today's value (or less) with tomorrow's dollars and tomorrow's value.
That makes sense. So it's not what I was thinking before then or does what I say up above still apply?
Another example of what you're saying for instance may be... in my market I've seen a lot of duplexes that are on the MLS asking anywhere from 40-50k per unit (on average). If I was to negotiate the deal down to say 30k a unit for a duplex $60k but at the time of purchase, it was really worth that $89.9k then I would be purchasing a property that has about $30k in equity as-is. Is this correct?
yes, if you buy lower than what it is worth at time of sale and the value stays the same or increases later you'll be coming out ahead.
LOL, the only way to acquire a property with no credit extended or cash is to have it given to you or trade for it.
Joe's master lease is a good solution, but understand, a lease or promise to pay future payments is an extension of credit!
The time wasted with pipe dreams and how to get something for nothing you can actually learn the basics of real estate, the business, not how to move shells around for some convoluted ploy that in reality is likely never to materialize. Elephant hunting with a sling shot.
Reality check: If you owned an apartment building would you let someone off the street with no RE track record lease your entire building with no money or credit and allow them to manage it all along giving them an ownership interest? Really???
Land, labor, capital and entrepreneurship, no business transaction takes place without 3 of these 4 functions. You can substitute any one of these functions for another function but you can never substitute land, it will always be on of the 3 functions. Land doesn't have to be the subject of the transaction, but you'll always be located someplace to conduct business, even if it's at your kitchen table on the phone.
Learn the basics or RE and what makes RE valuable, then how to manage those functions to facilitate a transaction, if you have no capital it will take labor and management to make up for the lack of money. You can't provide labor without skills and you can't manage without an education in that industry. BTW, guru junk is not an education in RE.
Gurus show techniques to use in RE.
There are many ways to bail out a sinking boat. You need to understand what makes the boat float to chose the right method to employ keeping the boat from sinking, use the wrong method and you're most likely sunk! :)
LOL, the only way to acquire a property with no credit extended or cash is to have it given to you or trade for it.
Joe's master lease is a good solution, but understand, a lease or promise to pay future payments is an extension of credit!
The time wasted with pipe dreams and how to get something for nothing you can actually learn the basics of real estate, the business, not how to move shells around for some convoluted ploy that in reality is likely never to materialize. Elephant hunting with a sling shot.
Reality check: If you owned an apartment building would you let someone off the street with no RE track record lease your entire building with no money or credit and allow them to manage it all along giving them an ownership interest? Really???
Land, labor, capital and entrepreneurship, no business transaction takes place without 3 of these 4 functions. You can substitute any one of these functions for another function but you can never substitute land, it will always be on of the 3 functions. Land doesn't have to be the subject of the transaction, but you'll always be located someplace to conduct business, even if it's at your kitchen table on the phone.
Learn the basics or RE and what makes RE valuable, then how to manage those functions to facilitate a transaction, if you have no capital it will take labor and management to make up for the lack of money. You can't provide labor without skills and you can't manage without an education in that industry. BTW, guru junk is not an education in RE.
Gurus show techniques to use in RE.
There are many ways to bail out a sinking boat. You need to understand what makes the boat float to chose the right method to employ keeping the boat from sinking, use the wrong method and you're most likely sunk! :)
So after reading all this, I'm left wondering if you're point is that zero money down is a "wrong method" or if you'r encouraging the original poster to gain more knowledge of the industry through education and skills for management, the stages of the transactions, etc.?
Zero money in is great when you have better uses for your money, assuming you have money, more economics, understand opportunity costs.
If you have no capital, make up for it through you labor and management skills. Those aspects must be developed to be employed, and yes, education is the key and learning skills like being able to cut a board in a straight line, it's harder than you think.
The stages of a transaction are elementary those are simply mechanical aspects. What bucket to select or which pump to use comes from understanding the effects of your efforts. How to structure a deal comes from knowing how to solve problems, what requirements must be met, how an owner will react and benefit and how you benefit, that requires RE knowledge, business basics, how properties are valued and values are improved, need to know the ramifications of your actions, what may or can happen to reduce your risks, need to understand basic RE law and business law.
Sometimes a transaction is simple, cash buyer and a seller go to closing, done. Sometimes they are complicated, you can also over complicate matters by employing the wrong methods. Just because someone like to do lease-options doesn't mean a lease-option is the right way to do every deal....or even most deals. Just because you can is no excuse to do something, the method needs to bring you to the easiest conclusion to ownership or profiting from your operations. Not every owner can make a deal, not every property will be a deal, if you're in water over your head you better know how to swim because sometimes you need to abandon ship! You also need to know that if you abandon ship you don't further damage the ship or the others on board, the ship can be salvaged and usually others too, so don't hinder the situation. Nor can you save everyone, life goes on.
Getting a good education in anything doesn't necessarily mean knowing everything, no one does, but you learn to recognize situations, opportunities, problems that others can't solve or won't solve. It means understanding what RE is and can be, the possibilities, relationships of the fundamentals.
Newbies get stuck in thinking in terms of steps to a transaction or method, wrong approach, that is dreamed up by gurus as it makes something seem easier, learnable, marketable for them. They don't teach real estate law, the lie about it or mislead or omit aspects as it isn't a profitable angle in selling their method or ideas. You can't paint a masterpiece with a paint by numbers set. If you get a 4 year degree in business at a University, there is a reason it is called a Bachelor of Arts Degree. Business and real estate has science applied, but it is an art to master. If your goal is to be a professional, get an education, if you goal is just to be a wheeler-dealer you can learn some 12 step program.....see how that works for you in 10 years running around as a wheeler-dealer. :)
great lecture bill. Knowing RE is first key to great deals. Start small then grow big, Re education is a must.
A. Master lease triggers DOS and Acceleration. Be sure to have the undying lender (if there is one) sign off on the deal.
B. Master lease doesn't transfer legal title, only equitable. As such, if you go and put 200k into the building, you could lose all of it if you walk on the option...not to mention the option consideration.
C. There are better ways to achieve blended 100% financing. At least I think there are - @Bill Gulley, what do you think :)
Lots of good ideas on this thread. I suggest you find sources of capital to fund your deal. It would help if you do this so when you make an offer, you are backed all the way with cash.
Pick up the book "No or Low Money Down" thats a good place to start to learn about creative investing.
Read Bill's post... Sleep on it and read it again. If you have no cash or credit... you should address those issues before trying to take down a multi unit property. The chances of you wondering into a good or even average deal in this situation is slim at best. The chances of crashing and burning are much higher. Be patient, educate yourself and get your financial house in order.
Joe hit the nail on the head. Save up capital. Get your elephant gun ready. Your first deal will most likely be much better with a down-payment, instant equity, and good cash flow right off the bat. Keep it simple!
Well, absolutely, in reality you need the right ammo and it isn't free, except in the BP forums, LOL
Fractionalized financing is possible, the seller will need to be involved and take a back seat to other lenders to get to 100% financing, unless the lender is an idiot. Those with skills and knowledge can swing that, 100% deals are pretty common for me to put together, if the pieces fit. This thread is at the crawling stage, you're suggesting running cross country. Also a great plug for your next blog, LOL. :)
Learning RE isn't hard, investors aren't tested unless they want to be in self study courses. You need to read about dry, boring stuff, (at least once) like surveying (not boring for some) but investors don't need to run around computing a back azimuth to write a legal description, but you do need to know how to read a legal description and figure an area of land. Several posts have been made about subdividing 2 or more properties after buying one parcel. An investor could easily go under contract with money down and later find out the plans are sunk because it won't survey out. Money lost, the investor contracted to buy that one parcel. So, you do need to be aware and know where to find information, you don't have to memorize everything.
In any business you profit from two sides, income generated and lowering expenses, knowing the basics of RE can paly on both sides making you and saving you money and time. :)
great thread guys! especially @Bill Gulley
I'm looking into buying an off market, but somewhat rundown apartment building in Atlanta, GA. It's close to where I live and in a good area. I'm looking for creative financing options and can personally manage the rehab of each unit.
My negotiation skills are pretty good, but I'll need to back it up with funding. This particular deal is under $2MM, but renovated and updated would be worth $3MM+ just running quick numbers
Any ideas? Thank you in advance
Phil