Use net worth to underwrite 5 Percent gap funding on $13m SFR portfolio

Creative Real Estate Financing
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Use net worth to underwrite 5 Percent gap funding on $13m SFR portfolio

David Willis
Investor · Richmond, VA · Member since 2020 · 6 posts · 3 votes

I have the opportunity to purchase a 13m SFR portfolio, however, most of my available cash is deployed into a 1031 and BRRRR deal. So I know that I have cash to repay the gap within 12 months. I can still fund roughly $400k today. I have more than enough net worth and global cashflow to cover a gap, however because most of my net worth is in collateralized real estate, I cannot directly access by say cashout refinance.

Thanks for ideas.

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Mike Fingleton
Real Estate Agent · Scottsdale, AZ · Member since 2024 · 155 posts · 103 votes
2y

@David Willis 

Hi David,

Congratulations on the opportunity to acquire such a substantial SFR portfolio! Bridging a funding gap in situations like this can be challenging, but there are several strategies you might consider:

  1. Bridge Loans: Short-term bridge loans can provide immediate capital to cover the funding gap until your other funds become available. These loans are typically secured by real estate assets and can be repaid once your cash flow improves.
  2. Mezzanine Financing: This combines debt and equity financing, allowing you to borrow the needed funds with the option for the lender to convert debt into equity if not repaid on time. It can be a flexible way to fill the gap.
  3. Private Investors or Partnerships: Bringing in a private investor or forming a partnership could provide the necessary funds. Given your strong net worth and experience, investors might be interested in a short-term investment with a clear exit strategy.
  4. Home Equity Line of Credit (HELOC): If you have significant equity in your personal residence or other properties, a HELOC can provide access to funds without selling any assets.
  5. Securities-Backed Line of Credit (SBLOC): If you have an investment portfolio, you could borrow against the value of your securities without liquidating them.
  6. Seller Financing: Negotiating with the seller to finance part of the purchase price can reduce the immediate cash requirement. This arrangement can benefit both parties if structured properly.
  7. Hard Money Loans: These are asset-based loans provided by private lenders. While they often come with higher interest rates, they can be a quick way to secure funding based on the property's value.
  8. Peer-to-Peer Lending Platforms: Exploring P2P lending options might connect you with lenders willing to fund real estate investments.

I once knew an investor who faced a similar challenge and successfully used a combination of a bridge loan and seller financing to close the deal. It's important to carefully evaluate the costs and terms associated with each option.

Consulting with a financial advisor or real estate financing expert can provide personalized guidance based on your situation.

Best of luck with your acquisition!

Cheers,

Jasper, the Pat Aboukhaled investor team,
Turning investment visions into reality in Phoenix, AZ - ranked #1 for residential real estate growth and opportunity by PwC.

Mobile: (480) 531-837

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  • Mike Fingleton
    Real Estate Agent · Scottsdale, AZ · Member since 2024 · 155 posts · 103 votes
    2y

    @David Willis 

    Hi David,

    Congratulations on the opportunity to acquire such a substantial SFR portfolio! Bridging a funding gap in situations like this can be challenging, but there are several strategies you might consider:

    1. Bridge Loans: Short-term bridge loans can provide immediate capital to cover the funding gap until your other funds become available. These loans are typically secured by real estate assets and can be repaid once your cash flow improves.
    2. Mezzanine Financing: This combines debt and equity financing, allowing you to borrow the needed funds with the option for the lender to convert debt into equity if not repaid on time. It can be a flexible way to fill the gap.
    3. Private Investors or Partnerships: Bringing in a private investor or forming a partnership could provide the necessary funds. Given your strong net worth and experience, investors might be interested in a short-term investment with a clear exit strategy.
    4. Home Equity Line of Credit (HELOC): If you have significant equity in your personal residence or other properties, a HELOC can provide access to funds without selling any assets.
    5. Securities-Backed Line of Credit (SBLOC): If you have an investment portfolio, you could borrow against the value of your securities without liquidating them.
    6. Seller Financing: Negotiating with the seller to finance part of the purchase price can reduce the immediate cash requirement. This arrangement can benefit both parties if structured properly.
    7. Hard Money Loans: These are asset-based loans provided by private lenders. While they often come with higher interest rates, they can be a quick way to secure funding based on the property's value.
    8. Peer-to-Peer Lending Platforms: Exploring P2P lending options might connect you with lenders willing to fund real estate investments.

    I once knew an investor who faced a similar challenge and successfully used a combination of a bridge loan and seller financing to close the deal. It's important to carefully evaluate the costs and terms associated with each option.

    Consulting with a financial advisor or real estate financing expert can provide personalized guidance based on your situation.

    Best of luck with your acquisition!

    Cheers,

    Jasper, the Pat Aboukhaled investor team,
    Turning investment visions into reality in Phoenix, AZ - ranked #1 for residential real estate growth and opportunity by PwC.

    Mobile: (480) 531-837

    2Reply
  • Ko KashiwagiPro Member
    Lender · Los Angeles, CA · Member since 2022 · 967 posts · 445 votes
    2y

    Is the seller wiling to seller finance? or partially?

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    0Reply
  • David Willis
    OP
    Investor · Richmond, VA · Member since 2020 · 6 posts · 3 votes
    2y

    thanks both for responses. I believe the seller might finance up to 5 or 10 percent, if it were a full price offer. However this leads to challenge 2, I'm not sure that the actual appraised value is 13.3m, it is likely, imo, closer to 12m. If I come in at 13, I may be facing issues underwriting the fact loan. If I come in lower, the seller may not offer financing. I guess I should say that I still feel the purchase is justified due to the seller and myself having overlapping markets.

    thanks

    0Reply
  • Chris SeveneyBusiness Member
    Moderator
    Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
    2y

    @David Willis

    Reviewing the ChatGPT response above - if you go with a bridge lender they would probably want to refinance out your other portfolio to be in first position on those assets - I don’t know of any bridge lender that would go into 2nd on all of them unless it was more of a mezzanine lender against the company but if it went bad they step in and would take everything (literally) as mezzanine debt takes ownership and control of the company.

    7e investments53 Reviews
    WebsiteView Page
    0Reply
  • Nick Bednarczyk
    Lender · Sarasota, FL · Member since 2024 · 187 posts · 24 votes
    2y

    That's a tough one. Without knowing all the numbers, I would suggest that you wouldnt want to purchase any properties that didnt appraise out. Regardsless whether or not there was seller financing involved. Just my take.

    best regards

    0Reply
  • Timothy Hero
    Lender · United States · Member since 2020 · 1k+ posts · 499 votes
    2y

    What's the dp needed for the loan? Typically speaking, 20-25% down would require at least $2.6 million for the down payment + closing costs and reserves.

    0Reply
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