New to the forum, been messing around in Real Estate for about 3 years though. I'm ready to take it to the next level and get in on the multi family game. I always try to put as little cash down on a deal as possible and in thinking this way I have come up with a strategy that I would love some input on. Let me know if you think this would work or if it's complete craziness.
We would secure an investor to put up 20% of the purchase price (the down payment) but instead of taking that "cash" to closing along with the 80% from the bank - I have worked out a deal with my bank to put that 20% into a CD and the bank would then loan the full amount and put a lien on the CD. The CD would be 24 months and earn right at 1%. My company would pay an additional 6-8& (depending on the $$ invested.)
The return would be paid out Quarterly and at the end of the 24 months we would refi the property, the CD would be released, and I would have a multi unit property for $0 down.
Example: $270,000 deal I'm looking at. Find someone to invest 54k with me, give them 7% APR. That would get them a $945 check every 3 months for 2 years. Then they would get all of their 54k back.
I have formulas I run the properties through to analyze the cash flow and if the deal would work or not. I figure if I find one that works - we open a round of funding. I think this could really take off.
I'll give you guys any more details you need or answer any questions. I figured I would bring this to the experts to see if you guys though it was feasible!
I'll let others chime in but I think 7% is too low for most investors to be interested. Hard money is 12-15% and that's with 25% of your own cash in the deal. What you're proposing here is none of your own cash in the deal with a lower rate of return.
Also does the bank know the CD is borrowed money? Generally they frown upon the down payment being borrowed funds in any way.
I agree that 7% is pretty low, however; a lot of it is depending on the deal and the person. How is your experience and how big is your portfolio?
you can get 10-12% short term on multi crowdfunding sites with much less risk
Thanks for the input guys - I don't really know any real estate investors so I wasn't sure about my whole idea.
The bank knows the money is someone else. I ran this all by them first.
So you think I would need to be at 10% return to get people interested?
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