We started buying mobile home parks in 2017. In 2018 we moved into small apartment complexes. We are basically using the BRRRR method to do this. We are refinancing out of 1.2 million in hard money loans. On top of that, one of our lenders wants to park 2 million with us for 2 years, interest only.
This glut of money is actually a problem. We are still stabilizing 90 of out 300 doors. 24 of which are complete rehabs. We need more human capital, and the pains of getting that human capital hired and trained takes our personal resources to do it.
We buy in rural Texas, and self manage everything. And due to the high interest loans we acquire properties with, equity is a must to get the DSCR to a 1.3 to 1.6 so there's cash flow to pay the employees we need.
This is a very odd and good problem to have I guess.
How would ya'll deploy the money?
@Corey Thompson first I would take a hard look at your overall operations and figure out how to create efficiencies and streamline so you can scale. Often self managing everything can be your biggest anchor in growing and scaling your operation.
I would recommend you take the $2million and lever it up into a $7million property, refi and re-deploy into larger properties. You only get one shot in this world so you may as well take it as far as you can while being smart and prudent.
@Corey Thompson the way you described your business this money presents a problem for your operations. I would suggest taking a hard look at whether or not you really want it. Why do you think this lender is offering to 'park' it at your place interest only? Yeah.
I invest 1 hour max from my house and the market is very high-like many other places. The only money making opportunities I see are distressed properties from tired, frustrated landlords who want out. Only so many of those!
Check with your lender (and other lenders) to see if they have a better product to suit your needs. Maybe get permanent financing to pay off the hard money with the rest in a line of credit. Financing should match the business strategy (not force the strategy).
Just because there is cash on offer does not mean you have to take it.
As you noted, your company has a temporary staffing problem. That can be a real block if you do not get it sorted. It will take to sort if correctly. In the mean time, more expansion will just build up problems for the future. Once the human capital is ready, then deploy the cash.
Assume for a minute that you delay expanding for 6 months. If the capital sat idle, what is the cost of 6 months? That might be a smaller number than taking the cash now and having a mess to clean up later.
I forgot one key piece of the puzzle. Private money lender will let us buy down interest rate by giving him equity. We are pulling +-400k out of our first 26 unit apartment deal that we've owned a little over a year. We are finding that if we solve the management problem small towns present, there's huge equity on these smaller complexes.
Something we have started doing is creating training videos on the jobs we do, so training a new staff member won't take 100% of our time.
I love the feed back. Maybe we just exchange the cheaper 8% interest debt on some performing assets that are still on 12% HML and let them season more before we refi with a bank. Use the extra cashflow to hire and train.
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