New way to raise money for rehab!
I figured out a way this morning to raise more money for a rehab and I wanted to pitch the idea to the community before I start negotiating with my prospective investor.
There is a duplex down the street in a very nice section of town with very good rental market. I've been dying to do a light rehab in this community because the rents will support the rehab. I have enough money to close and obtain the property however I lack the liquidity to fund the rehab.
I would obtain 12k from my friend who I also happen to work with. After the renovations I would charge my friend $600 "rent". On a normal payback schedule I would let him live there for "free" in payment for his 12k. This would take 20 months to get his payment back. However, I would allow him to stay 24 months giving him 4 months "free". These 4 months would be his $2,400 interest. ROI=16.67 over 24 months. (I would also pay a small amount of interest each month during the rehab until he can move in.)
I really see this as a win-win for everybody. He currently rents an apartment by himself for $800/mo. He will now be living in a much nicer newly renovated apartment for $600/mo. An instant $200 gain in cash flow. We have been speaking about getting an apartment together to save on money anyways.
One of the drawbacks I can see is that he is in effect signing a 24 month lease. He may not want to be constricted that long in case he gets a new job or has to move. I would allow him to sublet however I would have to approve of the roommate and it would make the process a quite bit more difficult.
I'm still in that "new idea" phase and I only tend to look at the positives. Please provide advice and let me know of any kinks in the plan that may need worked out!