Finding capital for cash flowing deal (OPM)

3 Replies

Hello everyone!

I have been looking for multifamily properties in the KCMO area and have finally found one worth pursuing. It's 4 doors and is listed at $240 but I'm sure with how things are selling today will go for $260. After running it through the calculator it would cash flows at roughly $600 a month even with the higher purchase price. 

All of the above sounds great except the down payment with closing costs will be roughly $55,000 and that's about $20,000 outside of my price range. 

My idea is to try and find someone to cover the full down payment or at least the majority. It would have the cash flow to pay them including a higher interest as an incentive. 55000 with 12% interest is $61600 total. If I told them I would pay it all back in 15 years they would get roughly $343 a month. 

My question is how do I go about finding people who are sitting on some capital? If I find them do I offer the monthly payment like I explained above or would they become a partner and let's say own 50% of the property? I'm not opposed to either option but would like to know what everyone has experienced. 

Thanks for the help!  

Hi @Mason Jacobs , in general you'll find people sitting on capital through networking and doing deals and sharing with people in your spheres.  As you do more deals develop a track record you'll start to see people "watching in the wings" start to engage with you in ways that show some interest in what you're doing.  Those people are often viable capital contributors.

As for interest vs equity (do you pay them interest or do you give them equity) .  . . this is a dynamic question.  For you, giving up ownership is often a much more expensive route to go.  It makes sense at times, but if you are simply wanting to raise the capital (that is the complete extent of your goal) then giving up equity would be a costly way to do that in terms of long-term control and returns.  However, if you are looking for more (like life-giving partnerships, complimentary skill sets, etc) then giving up equity to gain a partner can be inexpensive.  For them, gaining equity (including a percentage of cashflow) is nice, but becomes completely dependent on the operator.  For me this would call into question more than just the fundamentals of the deal and I would likely want a bigger slice of the pie than with a simple loan.

I'd recommend digging into your hopes, goals, and ambitions with this and your future real estate deals and matching what you offer finance partners with what you yourself are hoping to achieve.  Money is not limited, and as our world continues to mint more and more of it there is a seemingly evergreen source of it.  Offer what works for you and be a trustworthy provider of opportunities and you'll have what you need.