I'm new to the game and have been analyzing deals on BP for the past few weeks. I'm stuck on coming up with a down payment. I have family that would be willing to front the money but how long should I estimate to have their money tied up in the deal? Most of the properties I'm looking at do not need much rehab.
Thanks for your time and advice!
Recommend you don't go the family route, even though it is the easiest up front. If you do, tell them it will be 10 or 20 years.
If you fail, they fail.
If you succeed, why didn't he share.
No win, proposition.
Your non cash Assets- Time. Don't know if all fire departments are the same. The firemen I know work a lot of hours on; then a lot off. Thus they have free time. If you have this type of schedule, recommend you use your "Time" as the asset, sweat equity and do rehab/fixer uppers. Your returns are going to be minimal on Rent ready properties.
Ohio for what ever reason as you might have noted on BP has a lot of BP investor interest. You might seek out a financial partner from out of state. You be the on grounds person with an equity interest.
With low down payment available, you might look at starting with Trailers and RV rentals.
Also you might look at an SBA loan. 10% down. They only do certain types of property.
House hacking is probably out of the question with the kids and staying in certain school districts.
@Michael Franko It depends. But at a minimum 12 months. Use a promissory note and perhaps even a joint venture agreement. Have a backup plan if you need to go past 12 months. It's much easier to borrow money if you force appreciation through renovations or by raising the rents to boot income. This forced appreciation allows one to refinance a property and pull out equity at the new value, using such equity to pay the borrowed capital.
Just have a backup plan before you get to the due date. Plan now. Can you find adequate financing if you needed to pay back the private lender if they needed? What happens if something goes wrong? I'd say it is entirely possible and working with family is entirely doable. Just create the documents with an attorney, get some structure around the deal, have a backup plan and carry on.
@Henry Clark Thank you for responding! Normally firefighters would have the "time," but I got promoted a few years ago and traded my 24-48 for an 8-4 desk job. It definitely has its pros and cons!
@Chris Levarek Thank you for responding! I agree the forced appreciation is a good way to go, but some of the properties I have found are already cash flowing. These are either on BP or through contacts I've made for "Off Market" properties. I thought a property that was "turn-key" would be a good way to get started for my first deal? Is it a safer play to force appreciation?
Showing a potential partner, family or not, that the property is making money I thought would be a safer way to keep them interested going forward.
@Michael Franko In my experience, family and friends will want to see an exit date. Now if they are collecting a return on the turn-key and it is a mutual longer term arrangement, then a turn-key could be the way to go. Having a good business plan or profitable business, ie. the turn-key property, is always a great place to start for borrowing money.
However, in many cases, people have varying life situations and what is agreed in year one, can quickly change in year two. So having that exit date specified borrowed capital or longer term beneficial arrangement to both parties will be the way to go.
You don't need a turn-key to be profitable. We have and continue to purchase small and large multifamily properties always with slight value-add opportunity that are cash-flowing day one but allow for "forced appreciation", slight increases in rent based on minimal renovations, thus achieving both. Best of both worlds for all partners.