So I recently put under contract a 90-unit building and the downpayment is $600,000. I can put up the entire amount but would rather take a smaller slice and a family friend is more than willing to put up the other $300,000. Problem is that his bank will not refinance any of his current rentals as he only has about 25-30% equity on his homes. His personal residence is at about 40-50% equity but his current banker isn't sure if they can do a refi in time for closing (about 3 weeks out).
Here's what he has:
35 SFHs (all cash-flow positive, put about $1.2M into them and currently has about $2.4M of equity and market value of almost $7M)
Personal Residence (worth about $500k and owes almost $300k on it)
$500k in his 401K (max loan is $50k, and withdrawing isn't an option as he's in the 35% tax bracket + 10%)
He has over a $2M coming in from an overseas sale within the next 3-4 months so he's willing to pay a 10-12% interest if needed. Would there be any sort of company that would do a hard money loan on his SFH portfolio? Or perhaps against his 401k? He'd only need $300k so he can put up the $500k 401k and should he default, he would cash it out and net $275,000 on his 401k.
Any suggestions or guidance towards a company that might be willing to help would be gladly appreciated!
@Mo Karney , I can think of 2 (relatively quick) solutions:
- You put up the $600k, he pays you his $300k+interest in 4 months after the sale closes.
- He gets a Line of Credit against his SFR portfolio. If he has $2.4MM of equity, he shouldn't have a problem getting a $600k line. Another advantage here is that after he pays off the LOC with sales proceeds, he still has access to that money.
Thanks for the advice Jaysen. I'd rather just take the entire deal to myself than do the first option; but I'll see if any banks or someone can do a LOC on the equity.
We reached out to RCN Capital to see if they could do a refi and just bundle all the homes into one just so it makes things easier in the future cause we have a few more deals down the line.
When it comes a LOC, would a normal bank offer something like that? He's got roughly 30% equity in the properties and he only only needs 5% of it to cash out....
@Mo Karney , yeah, a normal bank. Start with the bank that holds most of the mortgages. Leverage the pre-existing relationship.