SKIN IN THE GAME

Creative Real Estate Financing
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SKIN IN THE GAME

Karen MargraveBusiness Member
Moderator
Realtor, General Contractor, and Developer · Redding, CA · Member since 2009 · 7k+ posts · 4k+ votes

If you were just starting out, and didn't have enough money for a down payment, how would you get a deal going?

I know many of you are cash buyers in lower priced markets. However; if you do finance your deals, how much skin in the game do your lenders require? Where do you get that from?

These questions are asked everyday by new investors, usually under the heading of private money, or starting out. I thought maybe some of you have some creative ways you've done it, and ended up with 100% financing, do you want to share?

As builders we have years of experience and deals behind us, and have often put deals together that are 100% financing. However; LTV's are much lower on new construction, plus all the things we bring to the table in the way of skills, etc., and the fact we've completed every deal we've started helps.

For new investors do you have any ideas to get them going?

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Brie SchmidtBusiness Member
Moderator
Real Estate Broker · Chicago, IL · Member since 2013 · 6k+ posts · 5k+ votes
12y

@Taylor Shapiro - the first 12k bought us a 300k property (3.5% down FHA). We lived in 1 unit and rented out the other 2. Those units covered our mortgage and we had a small profit of about $500 each month - so we lived for free. We stuck to the same tight budget we had initially, living off an allowance each week and not indulging in expensive things. We both work corporate jobs and make a decent living but we essentially live off 1 salary and save the other

After a year of banking everything (1 salary + $500 rental income/mo) we had enough for 25% down on another investment property. We made a really smart choice in that property and it has great CF. At this point we had 6 units and were living in one (free) and profiting about $2,500 a month. So we continued to save our personal income by living on a budget and adding the $2,500 profit from rentals until we had enough to buy another property in about 6 months. This was a OO 2 flat that we converted to a SFH with 20% down. We bought way under market value and did a complete renovation. If my estimates are right as far as the appraisal we will be able to cash out refi on the equity and have enough for a DP on 1 - 2 more.

So if all goes according to plan we will have about 2M in property within 3 years of buying our first. It is not always easy, it takes discipline. I have to remind my husband often that we cannot always buy the things we want if we want to retire by 45 and it takes self control to not spend money casually.

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  • Brian Gibbons
    Investor · Sherman Oaks, CA · Member since 2008 · 6k+ posts · 3k+ votes
    12y

    Hi Brian and Happy New Year. I want to better understand your JV with seller example. House is free and clear and ARV is $485K. I offer to pay for $50K in repairs and want to clear $20K profit, so I secure $70K with a note and deed of trust against the property. 90 days later the property sells for asking. Seller gets proceeds minus commission/closing costs of $45K and minus my note of $70K. Seller nets $370K. If I spend the entire $50K rehab budget, I make $20K.

    Questions: where did the $50K repairs come from and how much did it cost? Do I really net $20K?

    And, is managing a $50K rehab really better than wholesaling? :)

    ----------------------------------------------------------------

    Hi @K. Marie, Happy New Year too! :)

    Say you already K Marie have a rehab crew, you get them work, so you know the quality.

    So you are not babysitting.

    The $50K is private money.

    The $20K is your profit, secured with a note and mortgage.

    The JV needs cooperation though with the seller.

    The plusses are you are avoiding holding costs, avoiding conveying title, and getting your profit assured.

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  • Brian Gibbons
    Investor · Sherman Oaks, CA · Member since 2008 · 6k+ posts · 3k+ votes
    12y

    And the $50K could come from a Self Directed IRA Loan , set up through a custodian, like https://www.trustetc.com/investment-options/private-lending

    So the $20K profit could be tax deferred or at least tax favored.

    @Steven Hamilton II might want to comment.

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  • Steven Hamilton IIPro Member
    Accountant, Enrolled Agent · Grayslake, IL · Member since 2011 · 5k+ posts · 2k+ votes
    12y
    Originally posted by @Brian Gibbons:
    And the $50K could come from a Self Directed IRA Loan , set up through a custodian, like https://www.trustetc.com/investment-options/private-lending

    So the $20K profit could be tax deferred or at least tax favored.

    @Steven Hamilton II might want to comment.

    Someone else can loan from their IRA; however, if you have a 401k you may consider taking a loan from it.

    [email protected]224-381-2660
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