Where can I find $250,000 for a down payment?
Member since 2020 · 6 posts · 13 votes
Where can I find $250,000 for a down payment?
Most Popular Reply
Malcomb StapelPro Member
Investor · Topeka, KS · Member since 2020 · 669 posts · 488 votesI'm with @Allan Smith on this one. You sound so far behind the 8 ball that it feels extremely unprofessional. You knowingly signed a contract with a sizeable down payment that you do not possess the ability to pay. Keep in mind that on the other side of that contract is a seller that is making plans which involve you actually doing what you promised.
Your best options might be to wholesale it, or call the seller tomorrow and let them know you can't do what you signed up to do.
58 Replies
- 4yJonathan StonePro MemberRental Property Investor · Camas, WA · Member since 2020 · 285 posts · 202 votes
@Stephen Hollenberg
So based on your numbers you need $245k at less than 8% on a 30 year amortization to cash flow.
As others have said the desire to continue to leverage up scares some people, me included. But if you wanted to move forward with the deal a partner or partners seem in order.
- Rental Property Investor · Boston, MA · Member since 2019 · 2k+ posts · 1k+ votes4y
Unpopular opinion...I LIKE YOUR APPROACH. You are taking a calculated risk. As far as getting the 250K, maybe you'll have to use a hard money lender. Do you have any trusted family members with deep pockets? Let's get creative, BUT I say GO FOR IT :)
- 4yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Quote from @Bud Gaffney:
Unpopular opinion...I LIKE YOUR APPROACH. You are taking a calculated risk. As far as getting the 250K, maybe you'll have to use a hard money lender. Do you have any trusted family members with deep pockets? Let's get creative, BUT I say GO FOR IT :)
how would a Hard money lender help in this position.. this is equity or it would have to be a junior lien which 99.9% of HML do not do . Just curious if you know of a HML that does equity positions that are not first position loans ?
- Rental Property Investor · San Diego, CA · Member since 2015 · 21 posts · 46 votes4y
If you have to borrow for a down payment, then in the words of Suzi Orman... You've be DENIED.. You can't afford it. Not sure being that highly leveraged, especially with country heading into a recession, high inflation and tail end of long term housing boom, if it would be prudent to be borrowing $ at 100% LTV or anything close. Those who get burned do so by greed and FOMO. Dad's sound advice to me growing up... 'don't be greedy'.
- Investor · Philadelphia Metro · Member since 2019 · 44 posts · 75 votes4y
Quote from @Paul Marthaler:
If you have to borrow for a down payment, then in the words of Suzi Orman... You've be DENIED.. You can't afford it. Not sure being that highly leveraged, especially with country heading into a recession, high inflation and tail end of long term housing boom, if it would be prudent to be borrowing $ at 100% LTV or anything close. Those who get burned do so by greed and FOMO. Dad's sound advice to me growing up... 'don't be greedy'.
I would agree that the OP should probably not borrow to leverage up to 100% LTV on this purchase. I personally would never want to be at 100% LTV. This is definitely where folks got into trouble in the lead up to 08 and 09, where 0 money down, and loose lending standards lead to people being in a really tough position.
That being said I don't think the OP should give up. It sounds like this potential opportunity cash flows really well with a standard down payment. Assuming the OP's numbers are correct, then this could be a great deal for someone else to fund and the OP to take a portion of the equity for finding it, negotiating, getting it under contract, getting great financing, and then managing it.
- Investor · Costa Mesa, CA · Member since 2016 · 1k+ posts · 1k+ votes4y
Finding $250,000 isn’t that hard. Start by looking under your couch cushions for change. Do you have a big piece of cardboard and a felt pen? You’ve got this!
- Rental Property Investor · Columbus, OH · Member since 2017 · 3k+ posts · 3k+ votes4yHave you asked any family or friends? It sounds like you are doing well in real estate so many they would be willing to partner? I have been blown away by how willing those in my network are willing to invest when I just ask.
Quote from @Stephen Hollenberg:
I'm under contract to buy a 6 unit, mixed-use property with seller financing. The seller will provide $700,000 of the $945,000 required. They are giving me 45 days to show proof of funds for the $245,000 so I need to find it!
-I can't take any more loans from my 401k.-I have 3 properties right now:
-Property A, worth $400,000, is currently financed at around 72% with potential to pull out $31,000 to get to 80%.
-Property B, worth $500,000, is currently in the process of being refinanced at 80% to pull money out to buy a separate property.
-Property C, worth $600,000, is my primary residence currently financed at 86% with potential for a HELOC to pull out $23,000.
If I can find $245,000 at 6% the property will still cash flow $400 per month at closing after all expenses, 5% vacancy, and 5% toward repairs. With potential rent increases and filling a currently vacant unit, it will cash flow over $2000 even fully financed.
Any help in where I should look would be appreciated! - 4yBruce WoodruffPro MemberContractor/Investor/Consultant · San Diego / Phoenix · Member since 2021 · 12k+ posts · 15k+ votes
Quote from @Scott E.:
BS - Entering a deal with insufficient funds and no idea how to get them is tantamount to fraud.
- Real Estate Broker · Columbus, OH · Member since 2021 · 203 posts · 247 votes4y
With this guy^ might be a sign to shy away from this deal.
- Member since 2018 · 41 posts · 41 votes4y
Wow. That’s razor thin. I never tell anyone no because I don’t own a crystal ball but I wouldn’t do that under those circumstances. I’m in a similar position as you in that I also own three properties but mine are fully paid off and I still wouldn’t do that. Right now I have saved enough money to put about 25% down on a fourth property and my local market in Boise is absolutely screaming but there is so much crazy stuff going on in the world right now, I think I’m gonna hang on to a little cash right now- fully knowing inflation will eat a hole in it. Good luck
- Investor · Philadelphia, PA · Member since 2020 · 82 posts · 36 votes4y
I agree with @Scott E.
It is possible to close on this. I'd say try to find someone with and SDIRA who has the $245k in their account to lend it at 6%. If you have two people who know each other with and SDIRA they could create an LLC and lend it to you that way.
6% is possible to obtain from someone who has it sitting at 0% in a savings account, CD or SDIRA.
It'll be a challenge but you can pull this together in 45 days.
Go for it!
- 4yDon KonipolBusiness MemberInvestor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votes
Quote from @Stephen Hollenberg:
I'm under contract to buy a 6 unit, mixed-use property with seller financing. The seller will provide $700,000 of the $945,000 required. They are giving me 45 days to show proof of funds for the $245,000 so I need to find it!
-I can't take any more loans from my 401k.-I have 3 properties right now:
-Property A, worth $400,000, is currently financed at around 72% with potential to pull out $31,000 to get to 80%.
-Property B, worth $500,000, is currently in the process of being refinanced at 80% to pull money out to buy a separate property.
-Property C, worth $600,000, is my primary residence currently financed at 86% with potential for a HELOC to pull out $23,000.
If I can find $245,000 at 6% the property will still cash flow $400 per month at closing after all expenses, 5% vacancy, and 5% toward repairs. With potential rent increases and filling a currently vacant unit, it will cash flow over $2000 even fully financed.
Any help in where I should look would be appreciated!This discussion seems to have devolved from the original posters question, where can I find financing, to an analysis of potential over leverage, contract option outs, and the morality of entering a contract without having the money in place.
the most important question to me is : is the seller doing the seller financing of $700,000 insisting on a 1st position lien or is he willing to subordinate to a small ($245,000) 1st and accept a 2nd position?
If the seller is willing to accept 2nd lien position, borrowing a 245,000 first secured by a $950,000 property becomes very easy. Probably not at 6%, but 8-9% seems doable.
if the buyer will need a 2nd lien of $245,000, the negatives for any lender become overwhelming. You have a buyer/borrower with 0 of his own money in the deal; you have 100% leverage; you have a 1st position lien that’s not “arms length”, increasing the likelihood of the seller and buyer getting together to do a “friendly” foreclosure and wiping out the 2nd lien holder; and you have all the alarms and triggers going off when a property buyer attempts to borrow of finance the down stroke.
A more likely financing possible scenario would have the buyer giving up ownership equity to a money party. While a 50-50 split is often thrown around as the default provision, I would think that the money parties would want closer to 75-80% of the deal, leaving 20-25% ownership for the sponsors “promote”. Another structure might have a closer to 50-50 ownership, but with the money partners receiving a preferred return on their investment before the sponsor receives any payout. Something like the investors get the first 6% cash flow as payout, and any overage is split 50-50 between the promoter and the investors. When the property is sold (or refinanced) the money partners receive a return of capital gain of 6% per year held and then anything above is split 70-30 with the money getting the 70%.
Btw, if the deal doesn’t make sense for either party under the above scenarios because anticipated returns aren’t sufficient, then the deal lacks the investment return to make it as a syndicated investment, in other words the deal isn’t as good as the borrower thought. Most aren’t. - Real Estate Agent · Destin, FL · Member since 2019 · 116 posts · 111 votes4y
sounds like a partner or liquidating one of your other properties may be the best options here. Is hard money or another line of credit, outside of HELOCs an option for you?
- Member since 2020 · 4 posts · 0 votes4y
I just reread my HELOC paperwork and there are no conditions the Credit Union can freeze or call the loan UNLESS I do something first - miss payment, do something I've agreed not to do, etc. Maybe others are different, but I would caution folks to read the paperwork and not just cast wide opinions.
- Rental Property Investor · Lehigh Valley, PA · Member since 2017 · 200 posts · 191 votes4y
Don't do the deal. Your portfolio inc home is leveraged at 80%. I think you should focus on building cash flow and equity in your current portfolio. It's not about the number of units its always about the cash flow.
- Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes4y
Quote from @Stephen Hollenberg:
Just a different way of doing things. I've got a property worth nearly $1 million under contract with seller financing that will cash flow more than $2000 per month in the first year and all I need to do is find some place to borrow the money from. Was hoping for creative ideas on here....business loan? Lines of credit? Etc.
LMAO!!!! "I got this deal under contract for $1million that makes $2k, all I gotta do is find some way to get $ to buy it" ROTFLMAO!..... yeah... all ya gotta do is find the $ to actually purchase it, lol.
Uhm.... Is there a reason why you think getting the contract set and bonkers sale prices is the hard part and getting the actual $ to close the easy????
If you wanna buy property at $1million that only brings in $2k per month, hey I'm your guy, I will sell you one of those per week!
Oh, seller finance you say, sure, you mean dump my property on you, make you do all the repairs out of your pocket, have you replace my furnace, a/c's, roof, deal with all the tenants, for $2k per million, AND your gonna hand me $245k cash at closing, lol, where do I sign up, SOLD!
- Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes4y
I am so very let down at the sheer volume of responses NOT pointing out the obvious that it's a HORRIBLE deal.
Horrible numbers, ridiculous leverage point, not to mention 0 in reserves what so ever.
I wouldn't lend on this at 18% interest, it's a ticking time-bomb, everything must go perfectly right just to skate by making near to nothing. What happens when have 1 other vacancy, just 1? What happens if there is ANY unit damage? What happens if need any maintenance at all on the property? Already stated of squeezing out every penny available to acquire.
Seriously, anyone who ACTUALY invests thinks this is remotely even an ok deal.... come on......
- Real Estate Consultant · Chicago, IL · Member since 2014 · 720 posts · 439 votes4y
Quote from @Stephen Hollenberg:
I'm under contract to buy a 6 unit, mixed-use property with seller financing. The seller will provide $700,000 of the $945,000 required. They are giving me 45 days to show proof of funds for the $245,000 so I need to find it!
-I can't take any more loans from my 401k.-I have 3 properties right now:
-Property A, worth $400,000, is currently financed at around 72% with potential to pull out $31,000 to get to 80%.
-Property B, worth $500,000, is currently in the process of being refinanced at 80% to pull money out to buy a separate property.
-Property C, worth $600,000, is my primary residence currently financed at 86% with potential for a HELOC to pull out $23,000.
If I can find $245,000 at 6% the property will still cash flow $400 per month at closing after all expenses, 5% vacancy, and 5% toward repairs. With potential rent increases and filling a currently vacant unit, it will cash flow over $2000 even fully financed.
Any help in where I should look would be appreciated!@Stephen Hollenberg, Here are some options:
1. Find a partner in the deal. They bring the 250K and get half a deal
2. Raise the money from people that have money in retirement funds. 6% might be too low for those investors. I will think they'll want 10% or so.
3. Get a 2nd mortgage at 6% or whatever interest you find and refi the loan in a year at 75% loan to value ( as you are mentioning the building value of 1 million. By then you'll have no vacancy and the numbers will work)
4. Raise small amounts from different investors. 5 investors at 50K each - voila you got your 250K
5. Take a personal loan - there are plenty of options at 50K or more, combine it with what your Equity line of credit and borrow only the difference.
Good luck to you!
- Investor · Philadelphia Metro · Member since 2019 · 44 posts · 75 votes4y
@James Hamling, I think the vast majority of posters agree that a property at 100% leverage with 0 reserves is not a good idea and I don't think private money, hard money, or a bank would lend on that $245K.
That being said if the property cash flows 2k a month at 100% leverage, it should pencil out to much higher cash flow per month at a normal 75% LTV. So if the OP found an equity partner for the deal (IE someone else who has the balance sheet to put the right down payment, closing costs and the reserves down), it could be a good deal.
All that is with the caveat that we know very little on the actual details of the property (deferred maintenance, specific location, realistic projections for rent, vacancy, operating expenses, taxes, property management, CapEX, actual financing terms etc.). Without all the details to know if the UW on the property is sound, we can't be sure if the deal is good or not.
But, I do agree that being leveraged at 100% on any investment property with little to no reserves is a recipe for any little thing going wrong and the whole house crumbling down. Also the OP presenting this as an opportunity that works at 100% leverage and without maintaining larger reserves is indicative of an investor/manager who is playing fast and loose with debt and might not be the most fiscally responsible person to manage the deal.
- 4yBruce WoodruffPro MemberContractor/Investor/Consultant · San Diego / Phoenix · Member since 2021 · 12k+ posts · 15k+ votes
I agree with @James Hamling. Everyone else trying to pull rabbits out of hats to make this work is just encouraging the wrong course of action....
Of course there are ways to make this deal work. A smart investor can make any deal work. But some deals should not work.
- Rental Property Investor · Brooke Park Drive · Member since 2018 · 1k+ posts · 2k+ votes4y
The only logical thing to do here is to go on Jeopardy and win $25,000 per day for 10 days in a row.
@Tim LLaycock
But what ARE those things that you have to do? "No longer be deemed credit worthy." Anything of that nature? I obviously cannot vouch for every heloc contract. But only after seeing what happened, did i interpret what was in the contract to mean what they meant. When they "recalled the loan." To this day the banker who got that HELOC for my father insists its a safe product. "They never do that." "Ive never seen it in 30 years." Etc. Etc. Offered the same product to me. On the same property. Insane... they really never explained why either... they just did it. But heres a few ways ive found that can trigger it without ever being late on a paymeny.
Have your credit drop below their criteria on a ramdom soft pull.
Have your DTI creep above their criteria.
Maybe by losing a job, an income source, having an unforseen expense that you pay via debt.
Death of a spouse thats on the note, maybe even one who isnt... if it affects your creditworthiness.
Property no longer meets their criteria.
No longer primary residence.
Some decrease in appraisal vaue.
Disaster not covered by insurance. I have a funny story about a dam that broke andthe water that then flowed down a highway and flooded homes that no one ever imagined would flood...
- Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes4y
Quote from @John Brodeur:
@James Hamling, I think the vast majority of posters agree that a property at 100% leverage with 0 reserves is not a good idea and I don't think private money, hard money, or a bank would lend on that $245K.
That being said if the property cash flows 2k a month at 100% leverage, it should pencil out to much higher cash flow per month at a normal 75% LTV. So if the OP found an equity partner for the deal (IE someone else who has the balance sheet to put the right down payment, closing costs and the reserves down), it could be a good deal.
All that is with the caveat that we know very little on the actual details of the property (deferred maintenance, specific location, realistic projections for rent, vacancy, operating expenses, taxes, property management, CapEX, actual financing terms etc.). Without all the details to know if the UW on the property is sound, we can't be sure if the deal is good or not.
But, I do agree that being leveraged at 100% on any investment property with little to no reserves is a recipe for any little thing going wrong and the whole house crumbling down. Also the OP presenting this as an opportunity that works at 100% leverage and without maintaining larger reserves is indicative of an investor/manager who is playing fast and loose with debt and might not be the most fiscally responsible person to manage the deal.
If If's and But's were when's and what's.........
Look, if were gonna play the "if, if, if" game let's make it worth the venture right, come on, let's really have fun with it. For example "if" it was a former speak-easy, what "if" he goes to reno a unit and finds bags upon bags of cash inside the walls, it would be a good deal. "if" he goes to install a sprinkler system, what "if" he strikes Black-Gold, a bubbling-crude! It could be a great deal.
As our fearless leader would say "Come-o... Come-o... Come-on Man!". What-if's are just B.S. plain n simple, the second anyone ever has to utter the words "what if" BOOM, it's a BAD DEAL, done, over, Dead On Arrival. What if is just a manipulation to shine a turd to call it gold, I don't care how shinny you make that thing it is what it is buddy.
AND I will point out there is added missing details such as where does Cap-X stand, where in life-span of mechanical systems is it, how much deferred maintenance, yeah, little annoying things I like to call facts. The ridiculous leverage is just 1 point of insanity, zero operational reserves is yet another, getting into a contract he had ZERO ability to perform on which by-the-way is ILLEGAL as it's called fraud, in all 50 states, just FYI on that minor tidy. There is layers of cr#p to this turd cake here.
“Just a different way of doing things.” (So, this time it really is different? I haven’t heard that since 2007. 😱)
“There are no red flags in his post.” (100% leverage with virtually no cash-flow or reserves. What could possibly go wrong?)
“I'd say try to find someone with and SDIRA who has the $245k in their account to lend it at 6%." (I think asking someone to risk their retirement funds, the most valuable money any of us have, on a deal with 100% leverage and virtually no cash-flow or reserves, is brilliant. Nothing selfish there.)
“Do you have any trusted family members with deep pockets?” (I foresee some very uncomfortable Thanksgivings when this one goes south.)
“… primary residence currently financed at 86% with potential for a HELOC to pull out $23,000." (Sure. Why not put your family’s home on the line with short-term money, borrowed with a variable interest loan as we enter a period of increasing rates. Then, use it for a long-term investment. Don't schools offer any sort of personal finance anymore?)
All of which makes me just that much more hopeful for another market correction. With some of these comments, all throwbacks to 2007, it’s clear we have to separate the wheat from the chaff and get back to some normalcy again.
- Investor · Hillsborough, NH · Member since 2015 · 137 posts · 126 votes4y
Can you clarify something?
Did you tell the seller that you had the $245K in cash when the contract was signed?
Join the conversationCreate a free account to reply, vote on answers and follow this thread.