Good Day All Investors,
I am a newbie investor that just closed on my first duplex this week. I am looking to structure some future deals with OPM by offering 10% ROI within a year or less so I can BRRRR, keep the property for buy and holds and return investor money with the interest. What is the correct way to structure something like this? Would clock start running while I am seeking more funding? Don't want to focus it around a specific deal because those can be here today and gone tomorrow. Just curious what would be the best way to approach this? I already have family and friends willing to invest with me with my success of past Entrepreneurial Ventures I have built. Also what about those investors that may want in on the actual long term investment as opposed to the 10% ROI?
Real life example of a well documented home run (20 people do stuff like this for every 1 that makes a thread), in Oakland where you "can't cashflow" and "can't brrrr" and all that jazz, ole boy says "hold my beer so I can grab some OPM" and....
Hi @Mark Lewis , welcome to Bigger Pockets and the wild world of real estate investing! For illustration of my idea I’ll focus on a house you purchase for $80,000 and rehab for $20,000
Example 1: Use OPM to purchase and rehab, then you refinance at a value of $150,000. The refi loan will come in at 75% of the appraisal value, or $112,500. So, you borrowed $100,000, need to pay back $110,000 (principal plus simple 10% interest), and the loan will hand you all of that plus $2,500 as a cherry on top.
Example 2: Use a commercial loan built for a flip to purchase property and do the renovation. Lender will ask you to put down 15% of purchase price. Use OPM to fund the $12,000 down plus $3,000 in closing costs. You'll need to pay back $16,500 to give a 10% ROI, which will mean you get $112,500 after refinancing, which pays back the investor for $16,500, the lender for their $88,000 loan (85% purchase price and 100% rehab) and leaves you $8,000 left over.
From these two examples you can see why I love having the bank as a partner in my deals, even when I'm using OPM. The $8,000 left over in this example would cover all of the carrying costs and the elevated costs of having two closings, makes the bank happy, AND gives an investor a 10% ROI on a project. More happy people = more happy partnerships that can grow.
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