How to Fund a 4-Unit (2 Duplexes) Opportunity

Question

Hell BP Community!

This is my first post on here, so cut me some slack (or don't!!). I have been listening to BP podcasts and reading as many books as I can force myself to read over the past few years and I currently own zero (0) investment properties. Analysis paralysis....

I'm finally closing on my first place and while going through all of the paperwork and associated steps with purchasing, I feel like I've gotten the "bug"!

Anyways, I've reached out to all of my contacts in the Northwest Indiana area (the Region) to see if any of them know anyone selling multi-unit places and that I am in the market. Lucky me, I found a great opportunity from a colleague of mine who I attended MBA school with. He has 4 units that he plans to list in a couple weeks from today and is willing to hold off on listing them to see if I want to buy them. I ran all of the numbers accounting for knowns and unknowns and used a conservative estimate to find out that every property will cash flow >$100/mo. On top of this, he helped develop the community where these properties are located in 2008 and has owned these 4 units ever since.

- 1 of the units has had the same tenant for the past 12 years

- The other 3 he's had 2-3 tenants

- I know this guy and trust this guy

Only problem.... I HAVE NO MONEY!!!

I'm in desperate need of help! BP how would you recommend I fund these properties? (I've thought of seller-financing which I will discuss with him on Sunday, HML's but don't understand them quite good enough to feel comfortable using them)

Any ideas or suggestions are much appreciated!!

Thank you,

Jon

Amaury Reynoso · Answer

I think you should ask the seller first if he'd go for seller financing. Never know what response you may get and it can be a game changer for you!

Derek Harris · Answer

Jonathan, for market analysis, there are several places you can pull market analysis information from. My recommendation is to compare that information with multiple sources. I recommend using the BLS website for employment-related data. Most city websites have a demographic and census information section. However, the census information should be taken with a grain of salt since its almost 10 years old. One resource Texans have is the Texas A&M University Real Estate Center which provides a lot of good data for most MSAs and individual cities. Perhaps you may have a similar resource for your state. I recommend reading the book The Perfect Investment by Paul Moore. He discussed the topic of market analysis in greater detail.

Jonathan Marsh · Answer

Derek,Thank you for your reply!To answer your questions;- No, the cash flow estimate does not take into account 0% down. I used 15 and 20% estimates assuming I could fund the down payment with other peoples money. I have one partner at this time, and a couple others who are interested.- The sellers motivation is to use the capital to purchase property in a different location (outside of the contiguous US). Because of this, I don't believe seller financing will work either because he needs the money now for these purchases....- The seller has owned these properties for 12 years and has had essentially 0% vacancy (maybe 1 or 2 months in those 12 years).- I did not do a market analysis. Do you have a recommendation for the best ways research this? I typically use City-Data.com but would be open to further analysis techniques.

Thanks again,

Jon

Nicholas Smith · Answer

@Jonathan Marsh I'm in Northwest Indiana.  Let's chat.

Derek Harris · Answer

Jon, does your cash flow estimate take into account 0% down? The seller financing option could work, but keep in mind that if you put 0% down (no skin in the game), what message are you signaling to the seller? This all depends on what the seller's motivation is. If they are highly motivated to sell, then 0% down may not be such a big deal to them. Otherwise, how does the seller know you will keep your commitment to pay the loan in the event there are vacancies. How stable is the market? Did you do a market analysis (i.e population growth, job growth, housing growth, etc.)?

If you truly believe this to be a great deal, then you will have no issues finding someone to partner with you on it. I recommend finding what the seller's motivation to sell is.