Leveraging equity on my first deal

[Blake Petty]

This is my first investment and need help understanding how to leverage my equity for more doors.

Last november (2024) i bought 3 connected properties in a neighborhood going through a renaissance. The purchase price including closing costs was ~$33,000 for all 3 lots together. One has a house (built 1911 870sq/ft) that i have been renovating. Up until now i have been using a private investor’s capital who wanted to see me get started in RE. Currently ive used 52,000 of his money. I am getting a construction loan ($60,000 at 6.5% interest only first 12 months) to finish the rest of the house to get turn key ready. All in all i will have $98-$105k invested in this house (52k from investor and rest from loan). The house has appraised for a finished value of $155k. Is there a way i can pay my private investor back (he only wants what he put in) and still have capital to put a downpayment on a modular house to place on one of the other properties?

[AJ Exner]

Hey Blake,

Congrats, that sounds like a great start. Without knowing the specifics of how you guys structured the PML, I would recommend having him put a formal lien on the property for the 52k if they haven't already. 

What that does is give you the flexibility that if the appraisal comes in a little lower (not sure if the $155k is the ARV appraisal or the stand-alone now that its finished) that you can set it up as a 'Rate and Term' Refinance and makes sure everyone gets paid off. Always good to pay off debtors first.

If you don't have a lien, and the appraisal comes in lower, then you are capped at 75% rather than 80% on a R&T which might leave your PML a little short

Otherwise, it might just be "cross your fingers and hope for higher appraisal" category. You're looking at 75% cash out on $155k ($116k), which wouldn't leave much after closing for the modular. 

Hope that makes sense, good luck!