Raising capital without affecting your cash flow

7 Replies

I currently own 2 house(4 units) in San Diego and currently cash flow $3,700 a month but put all my capital in the purchase and remodel/split of my second property. I am trying to figure out the best way to raise capital without affecting my monthly cash flow and want hold my current properties long term. Being that I am in an expensive market I need to raise 200k for my next property. I Was looking into hard money to to finance my next deal and then remodel and refinance, but feel like there has to be a better option? Looking for any other creative ideas....

Hard money can be pricey, can you find someone to lend you the funds under more preferable rates or terms? What about joint venturing with another investor?

Originally posted by @Jason Fiori :

I currently own 2 house(4 units) in San Diego and currently cash flow $3,700 a month but put all my capital in the purchase and remodel/split of my second property. I am trying to figure out the best way to raise capital without affecting my monthly cash flow and want hold my current properties long term. Being that I am in an expensive market I need to raise 200k for my next property. I Was looking into hard money to to finance my next deal and then remodel and refinance, but feel like there has to be a better option? Looking for any other creative ideas....

Move beyond thinking about your cashflow and instead think about how much money every single dollar you have is earning you.  Many people (myself included) will give you the $200k for your next property, but you're not going to like the terms.  And, you'll end up with higher cash flow overall if you get capital from your stabilized property and then use it for your next risky project.  

If you're looking to maximize returns, the general approach is this: Use your own money for things you're doing that other people think are risky.  Use other people's money for things they think are not.

 

@Jason Fiori I liked this question, got me thinking.

I would find another golden-deal duplex, then secure 100% funding on a fix n flip loan. No down-payment means you don’t have to strip equity out of your other properties and increase their monthly payments for mortgage/debt service.

Then I would look to see if it’s possible to do short-term rental on one of the units, whilst fixing up the other one. Possibly one of your contractors might like to stay there if you’re not doing everything yourself. You could then use the rental income to cover the monthly payments on the rehab loan, meaning once again your cash flow has not been reduced. Fix the first unit, then when your short term rental is free again, rent out the newly rehabbed unit and go fix up the other one.

When everything is renovated, hopefully the improved home value will cover your LTV requirements on a re-finance (otherwise why bother doing it at all).

I understand that this would take some work, but I think it’s theoretically possible to raise the capital and take on a rehab project without impacting your current cash flow.

Will be fun to hear how you solve the problem in the end!

Alternatively, if there were no repairs needed - you could simply market the deal to another investor, have them cover the down-payment and you get paid in equity rather than cash.

If you can find sellers that are open to owner financing their home, I know first hand this is an attractive enough offer for many investors to do this.

Originally posted by @Justin R. :
Originally posted by @Jason Fiori:

I currently own 2 house(4 units) in San Diego and currently cash flow $3,700 a month but put all my capital in the purchase and remodel/split of my second property. I am trying to figure out the best way to raise capital without affecting my monthly cash flow and want hold my current properties long term. Being that I am in an expensive market I need to raise 200k for my next property. I Was looking into hard money to to finance my next deal and then remodel and refinance, but feel like there has to be a better option? Looking for any other creative ideas....

Move beyond thinking about your cashflow and instead think about how much money every single dollar you have is earning you.  Many people (myself included) will give you the $200k for your next property, but you're not going to like the terms.  And, you'll end up with higher cash flow overall if you get capital from your stabilized property and then use it for your next risky project.  

If you're looking to maximize returns, the general approach is this: Use your own money for things you're doing that other people think are risky.  Use other people's money for things they think are not.

 

Great answer! 

Originally posted by @Eric James :

When people don't want to take the time to save money, they want to "raise" money.

 To be fair, there are deals out there that would take a lifetime to save for

if a $20m deal came your way that was below market and a no brainer, you can’t fault someone for trying to raise the 5-6 million needed to buy.  Unless you want them to tell the buyer “hey. Can we go under contract and you can give me 79 years to close?”


I’ve had to borrow private money a few times on deals. And I’m glad I did as I’ve made millions from them. Had I not borrowed private funds I’d never been able to have bought those properties. 

(I’ve only done it on 3 deals and I raise it as debt. Never equity)

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