This is probably straight forward for some investors, but that’s why I’m here. I have no experience with financing larger apartment buildings and I’m wondering about down payments. I’ll give you a simple hypothetical. I’m purchasing a 6 unit building. I have funds for a down payment, but decide to borrow the downpayment and hang on to my own funds as a reserve fund. I secure the 20% needed from a private lender; how does the private lender get his return?
Do you set it up as a straight forward loan over a set number of years?
IF you are getting a bank loan, the person putting up the down payment needs to be a partner. If you are getting owner financing it doesnt matter. You could have the owner financing money and the private lender money as a loan also.
Do you have experience with owner financing? I’m looking at a 6 unit building that needs a lot of work. So I’m wondering how that would work because I need to cover the down payments for the total amount I need to borrow rather then just the purchase price. Do you set up a payment over five years then give him a balloon payment for the remaining balance? I’m sure there are several ways
If you are just getting started, I don't recommend you borrow the down payment. Why would you borrow now and then use your own funds for the next purchase? It makes no sense.
If you're serious, you'll put your own money down. Cut your teeth and make sure you can handle an investment before making plans to buy the next one. Once you've proven yourself, then you can consider a higher-risk situation with 100% leverage.
That’s why where it becomes confusing because everyone always says use OPM, which is what I did for the first two four units I purchased and everything went smooth. This is a bigger purchase then my first two, so I’m conflicted whether I should hang on to my own funds for the renovation, use for the down payment, keep as a reserve, etc.
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