I have $500,000 cash that I'd like to deploy into real estate. I am thinking about going the turnkey route. My question has to do w/ financing.
I am looking at potentially buying SFRs in the 100K range. If I were to pay all cash for the properties, maybe I could buy 5 homes. But if I could finance the homes w/ 20% down, I could potentially buy 2.5 million worth of homes, which would be about 25 homes worth $100K each. My cash on cash return and total ROI would be much higher than if I had purchased just 5 homes for cash (I really wouldn't buy 25 homes and have no money left over. I'd probably buy 15 homes and have some reserves aside to deal w/ issues that come up).
Here's my problem: While I have excellent credit, I only make about $2,000 in income per month. Is it possible for someone like me to qualify to buy so many homes or am I dreaming and will have to pay all cash to buy properties?
Since these properties will be used as rentals, can I buy maybe a couple of properties a year and then use the income from the properties to help finance my next two properties and so on?
Thank you for any feedback, it would be much appreciated.
@Steve Matthews You are thinking about it the right way. And while you are right that you probably wouldn't be able to qualify for bank financing because of your income, there are a lot of other lenders that would take that on and only charge a few percentage points more in interest. Try looking into portfolio lenders and other non-conventional lenders.
Where are you looking to invest? As a fellow coastal Californian, I have not come across many $100K properties. If so, where are they?
Are you looking in Nevada or Arizona?
There are a few options you could utilize and have the asset secure the debt and leverage yourself to attain more properties to increase cashflow. Feel to contact me to discuss if you wish.
Another possibility is to find a hungry, young partner who can run flips into BRRRR. Of course the problem with that is finding an honest, quality partner. I would love to find a money partner who wants to be involved that I could help grow his money. (No I'm not pitching myself.)
This is likely more involved than a turnkey but also gives more control and more margin.
Sounds to me like you have several good options:
- Buy cash, like you mention
- Use an "Asset-Based" lender or "portfolio lender" that will lend not on your personal financials, but on the asset you purchase. Be warned, these types of loans often come with higher points, higher interest rates, and shorter terms than you might get if you were to personally guarantee the note.
- Buy one smaller property and hold onto it for two years, investing the rest of that cash elsewhere. At that time, you will (hopefully) have two years of tax returns, allowing you to use rental income you currently receive and rental income expected in future purchases to help you qualify for the better terms from conventional financing. You will likely find that this will give you the most purchasing power over time.
Easy. Buy a 5+ unit apartment building and get a Chase non recourse loan. No tax returns required.
Thanks for the replies. Scott Trench, that's my worry, the higher interest rates and shorter terms scare me because 1) it might kill the cash flow and 2) I rather not be vulnerable to higher interest rates that are likely to be a reality in the years ahead (shorter terms/balloon payments scare me a bit bc of that). Johnathan: I am looking all over the Midwest.
Thank Matt Hoyt, I will have to do some research on commercial loans. I am a newbie in real estate having spent the last several years investing in the stock market so I have a lot to learn about real estate.
Do you meet accredited investor status based on net worth? If yes, since you are thinking turnkey, why buy all those SFRs and complicate your life w/15 homes and try to get financing, etc. Why not take some of that money and look into a passive opportunity w/scale in that of large MF apartments. That is one idea that would seem to work for you amongst others but seeing that you want cash flow, don't want to worry about financing a deal, just go find expert (syndicators) that can get you into deals that create excellent cash flow and IRR (think 10% CoC and 20% IRR as achievable in this space) and let the syndicators leverage their assets to get the financing, take all the risk, you come in as a limited partner, help fund the deals and get paid quarterly cash distributions. Often times value add sponsors will refinance after a few short years once they finished the renovations of the property, inserted new property management that know how to value engineer the financial operations to increase the NOI. This is why the big money is in commercial real estate. They don't monkey around w/bunches of SFRs and can get 300 units under one property ownership w/one loan, expert management and take advantage of scale / forced appreciation which is not something in the SFRs lingo kit. Something to ponder.
As many have discussed there are options.
I work in Grand Rapids, Michigan.
There are tons of opportunities for investing depending on route. If you would like to get more into the options let me know.
I have a lot of connections with property managers/investing properties as well!
Hi @Steve Matthews , if you're an accredited investor you might consider investment into DSTs. They are hands-off, institutional grade real estate investments, and they allow you the option to diversify. You can buy into institutional grade $50-125M projects with as little as $100,000. Professionals with decades of experience and very impressive track records do all the heavy lifting for you. You get potential cash flow, tax shelter and appreciation. Loans are non-recourse. Happy to answer any questions you may have. - Leslie
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What are "DSTs"?
Hi @Charles A. , DST stands for Delaware Statutory Trust but has nothing at all to do with investing in the fine state of Delaware!
DSTs are a legal structure that allows smaller real estate investors to access larger institutional grade properties by contributing their equity along with a group of other investors. DSTs are offered and managed by firms who perform a myriad of functions on the investors’ behalf.
In the syndicated real estate market today, Sponsors almost exclusively use Delaware Statutory Trusts (DSTs) as their legal structure. Individual investors each own beneficial shares in the Trust, but they have no decision-making authority or personal responsibility for the loan on the property. It creates a streamlined process where the institutional real estate experts, the Sponsors, are tasked with property performance.
@Steve Matthews My bank offers a Debt Service Program, very similar to the old NINA program which is no income and no asset.
As many have stated, the $$$ puts you in a great position. Before going any further and if you haven't already made a move, where are you seeking to invest in real estate?
Diversify part buy and hold part flip hybrid deals. Base it on your risk level discomfort level. Leverge for growth.
Good fortune ahead!
@Steve Matthews Curious if you made any decisions here? Lots of good info in the thread! Thanks.
I need a money partner on some new construction homes here in Dallas if you're interested in that. I can send you some info. Net profits are up to $250k that we split 50/50.
With 500k you could purchase several homes in some of the middle states such as Indiana or Ohio or others and have property management groups manage them for you. We got a few in Indianapolis last year that have good numbers.
Let me know if you are interested in Arizona at all. We are set to buy 10 or more buy and hold properties where we will be getting bank financing for 75% of the purchase price and looking for investors interested in making 10% for 5 years in monthly cash flow payments to partner up with us on these deals. Each deal would probably be between 20k and 30k for the investor partner.
@Steve Matthews multi family! PM me to chat more. But that is some cash that allows you to buy properties with an NOI of $250k. Cashflow right away or shorten your amortization to maximize your net worth and make a decision in the fire on where to deploy your worth.
@Steve Matthews I spoke to my lender on this and it seems that your lower monthly income would not be an issue, since they could lend based on rental income. See his notes:
If the proposed investment property has a tenant or a signed/executed lease, we can use the rent to offset payment.
They get credit for 75% of the rent. Example:
$1,000/month in rent counts as $750/month in cash flow.
If the new mortgage payment is $750, it’s a wash. If the payment is $700, they get $50/month to the positive.
Hope this helps. PM me for more info and I can put you in contact with my lender here in Grand Rapids, if you chose to invest here. If you do, look me up and I can run a property search for you.
@Steve Matthews You could buy solid cash flow properties 12%+ Net ROI with cash or financing here in Cleveland Ohio, one of the best cash flow markets in the country. I'm already working with several other out of state investors. PM if you are interested in learning more about the Cleveland market.
Are you interested in buying real estate out of state?
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