Awesome Deal (See Numbers) Stalled by Financing - What Next?

Real Estate Deal Analysis & Advice
10yFollow

Awesome Deal (See Numbers) Stalled by Financing - What Next?

Ericka G.
Investor · Atlanta, GA · Member since 2015 · 366 posts · 283 votes

Last year, I stumbled upon a really solid niche investment opportunity - airline crashpads - and am on the cusp of closing a great deal BUT was turned down by my bank for the financing. This would be my 3rd deal in this niche area of landlording, 5th deal overall...my husband and I have the cash to buy outright but that would wipe out our liquid savings, which I don't want to do.  

Based on the numbers below: 1. Do you agree that this is a great investment? 2. Do you think my best bet is to go to a bank or seek a private loan, etc? 3. How best to present myself (recently self-employed) to get the funds? I pitched the idea to my family and they totally shot us down, plus they have no money (lol), so I'm feeling stalled after the bank rejection due to my employment status. I already have 2 mortgages in my name from previous deals (when I had a 9-5) and hubby has 1, a VA loan, which from our understanding might be jeopardized if he got another home in his name? We both have stellar credit, but debt to income is wonky with all the recent real estate.

Pls help, I feel like I'm sitting on a gold mine but can't figure out how to get to the gold...

PROPOSED Deal #3: 4/1.5 SFR in suburb of Detroit 

Acquisition cost (including rehab): $55000*

Current estimated value: $90000

Gross Rent: $24240 (rather high due to the crashpad niche)
Vacancy (5%): $1212

Expenses +Capex: $6480

NOI: $16548
Annual Debt Service: $3850

Annual Cash Flow: $12698

Cap rate: 30%

*This is a pocket listing/not on market.  Negotiated this price with the seller before market heated up, may lose the deal if he realizes how much prices have increased or decides to break his word.  

Below are the numbers we've seen on our last two deals in this same area.  We have a solid network of local contractors, know this niche and area really well now, and have a waiting list 6-deep of pilots/flight attendants who want into our next property.  

Deal #1: 3/1 SFR in suburb of Detroit
Acquisition (including rehab): $57000
Current estimated value: $68000

Down payment: $0 – VA Loan
Gross Rent: $18960
Vacancy (5%): $948
Expenses (including annual debt service) +Capex: $9398

NOI: $8614
Annual Cash Flow: $8616

Cap rate: 15%

Deal #2: 3/1 SFR in suburb of Detroit

Acquisition (including rehab): $40369 - purchased all cash

Current estimated value: $61000

Gross Rent: $18240
Vacancy (5%): $912

Expenses +Capex: $5820

NOI: $11508
Annual Debt Service: $0

Annual Cash Flow: $11508

Cap rate: 28.5%

0Reply
31 views

Most Popular Reply

Don KonipolBusiness Member
Investor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votes
10y

Take your deal to the most knowledgeable, reputable mortgage broker you can find, and get his opinion as to whether conventional financing is available to you or not.

If it is not, your choices are either private/hard money loans, or equity Partners.  A hybrid of debt/equity preferred return is also a possibility.

You may want to get familiar with some of the crowd funding portals if you want to fund a larger number of deals in the future.

Personal loans and sometimes mortgage loans are available through P2P loan sites.

Private Mortgage Financing Partners, LLC
WebsiteView Page
1Reply
See this reply in the discussion

25 Replies

Jump to latestLatest
  • Scott Mclaren
    Investor · Gilbert, AZ · Member since 2015 · 96 posts · 46 votes
    10y

    Hello Ericka,

    I understand crash pads, my wife and I both work in airline industry. We have never had to use one but we certainly know many people who have. My question to you is how do you manage the rent collection etc from Atlanta for Detroit crash pads? 

    0Reply
  • Don KonipolBusiness Member
    Investor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votes
    10y

    Take your deal to the most knowledgeable, reputable mortgage broker you can find, and get his opinion as to whether conventional financing is available to you or not.

    If it is not, your choices are either private/hard money loans, or equity Partners.  A hybrid of debt/equity preferred return is also a possibility.

    You may want to get familiar with some of the crowd funding portals if you want to fund a larger number of deals in the future.

    Personal loans and sometimes mortgage loans are available through P2P loan sites.

    Private Mortgage Financing Partners, LLC
    WebsiteView Page
    1Reply
  • Christian Sifuentes
    Flipper/Rehabber · Fair Lawn NJ · Member since 2016 · 382 posts · 87 votes
    10y

    Can someone explain crash pads please?

    0Reply
  • Jason Hern
    Investor, Realtor · Decatur, GA · Member since 2015 · 89 posts · 45 votes
    10y

    Ericka,

    Out of curiosity, why not the same model in Atlanta? The areas around Hartsfield has a similar price point.

    0Reply
  • Tzvi AusubelPro Member
    Rental Property Investor · New York City, NY · Member since 2015 · 244 posts · 66 votes
    10y
    Christian Sifuentes , from my understanding, it's apartments rented to airline personnel (pilots, flight attendants) to "crash" between flights/shifts instead of at a hotel, and could be split between multiple people to split the cost.
    1Reply
  • Michaela G.
    Investor · Atlanta, GA · Member since 2013 · 3k+ posts · 3k+ votes
    10y

    I would think it's the same reasons that it would be difficult to get financing for rooming houses...which craspads are. It's against the law in many ordinances. I certainly wouldn't want to live next to one and would complain

    0Reply
  • Ericka G.
    OP
    Investor · Atlanta, GA · Member since 2015 · 366 posts · 283 votes
    10y

    @Don Konipol - great suggestion. I will reach out to the mortgage broker who helped us with my hubby's VA loan, he's the only trustworthy mortgage broker I've met so far. Any reco's on PtoP lending sites? Our model is working, we're just not sure how to take it to the next level, which is really frustrating.

    @Scott Mclaren - We use Paypal or direct bank deposits.  My husband is a pilot w a DTW crew base and is "crashing" in one our houses, so he keeps an eye on things. I fly free b/c of his job and was doing my 9-5 job remotely for the past 7 months so I also could hop on a flight and go up there if we had any issues.  Things have worked well so far.

    We want to buy a house in ATL, just haven't found the right house yet.  Most of the houses right by the airport need too much work in that price point or are too far from MARTA.  We also didn't see quite the same demand or ATL as most who get an Atlanta crew base actually want to live here full time.

    For those with questions: a crashpad is a house or apartment shared by airline personnel who live in one city but have a crew base in another.  It is NOT a flop house.  We have rental agreements and most will stay 6 mos-1 year+ before moving on. Our houses are mostly pilots who work with my husband - these are class A tenants and our neighbors love them.  In fact, our next door neighbor at one house is a retired pilot who often gives our tenants rides to/from the airport! 

    0Reply
  • Ericka G.
    OP
    Investor · Atlanta, GA · Member since 2015 · 366 posts · 283 votes
    10y

    My other question, which maybe wasn't clearly articulated earlier is HOW to present myself to best get funding? Should I put together some slides with the numbers I've shared here and also a summary of our other assets that could back up the loan?  Go in person with a portfolio to a local bank in MI?  

    The goal is to do a bunch more deals like this, with the next few focused in Atlanta - just looking for the right property here.

    0Reply
  • Michaela G.
    Investor · Atlanta, GA · Member since 2013 · 3k+ posts · 3k+ votes
    10y

    I would say that you should present this as a normal rental property, because as a crash pad (again, it's illegal in many municipalities) there's the risk of getting shut down, which is too risky a proposition for a bank. Or you should try to find a private lender, who doesn't know that rooming houses are illegal in many areas, due to zoning (yes, in Atlanta they are) and neighbors will fight them. 

    If this was next to me, I would do anything I can to get it shut down, because having constant taxis or shuttle buses coming and going at all times of the day or night and tons of people in an out, would bring down the quality of life for neighbors. 

    I've seen those crash pads, when I went with a flight attendant friend of mine in Atlanta. 3-4 beds/cots in each bedroom. People having to step over each other. 

    0Reply
  • Scott Mclaren
    Investor · Gilbert, AZ · Member since 2015 · 96 posts · 46 votes
    10y

    Getting back to your original question. Those numbers you have put up on the deal are too good to pass up. I would go with hard money loan to get the place , do what you need to do to get it running, then look at refinancing it to a better loan. With the equity you are showing on the place and the cashflow , you could afford the 12% hard money loan. Pilots I know have cash looking to invest, probably could find one with either self directed IRA money to put to work or just keep that much in a checking account.

    0Reply
  • Ericka G.
    OP
    Investor · Atlanta, GA · Member since 2015 · 366 posts · 283 votes
    10y

    @Michaela G.  There is a wide range of crash pad set ups...we do not run ours like a rooming house - some landlords overfill the houses in what are called a "hot bed" crash pads.  We have 1-3 people per bedroom MAX (several tenants pay more to have their own room, less to share) and thus don't have legal issues from a zoning perspective in this city, which is full of airline employees.  But that is a good point - I will have to check the laws in ATL before we make our first purchase here.  Ours are set up like a home away from home for flight crews on reserve for 6 mos-2years, which is why we have a waiting list.

    0Reply
  • Ericka G.
    OP
    Investor · Atlanta, GA · Member since 2015 · 366 posts · 283 votes
    10y

    @Scott Mclaren  Thanks for the tip! I will look into a hard money loan...I didn't realize 12% was the range...what I'd read said more like 30%.  I guess I'm not sure where to start/what organizations to approach for hard money loans - I'm guessing a smaller financial institution?  I looked into cashing out one of my IRAs but the fees scared me off...seems like there has to be a better way.

    0Reply
  • Chris MasonPro Member
    Moderator
    Lender · CA · Member since 2015 · 9k+ posts · 10k+ votes
    10y

    Hubby getting another mortgage on a different prop will not impact his VA loan. You will need to check how much remaining entitlement he has if he wants this new mortgage to be VA.

    0Reply
  • Ericka G.
    OP
    Investor · Atlanta, GA · Member since 2015 · 366 posts · 283 votes
    10y

    @Chris Mason Ok, will check into that.  Also, I see there are a ton of other posts on hard money/private lending, so I'm digging into that on other forums...sorry for the repetitive questions.

    0Reply
  • Michaela G.
    Investor · Atlanta, GA · Member since 2013 · 3k+ posts · 3k+ votes
    10y

    A rooming house is usually seen as one when more than 2 or 3 unrelated people are living in the same house or if people are renting individual rooms. It doesn't matter if people might be upscale or have longterm leases. You would be running a rooming house....which would conflict with zoning regulations in many areas.

    0Reply
  • Ericka G.
    OP
    Investor · Atlanta, GA · Member since 2015 · 366 posts · 283 votes
    10y

    @Michaela G.  I hear you, but in the city where we own, there are no rules specific to this matter like the ones you note...we passed our occupancy inspection with flying colors.   I just re-read all 314 pages of the zoning ordinance to double-check.  We got lucky by buying in a very airline employee friendly community.  If they change the rules, we'd be grandfathered in.

    That said, I'm really glad you raised this point - I will check the rules in ATL carefully (specifically East Point and College Park) before we pull the trigger on opening a crash pad here.  

    0Reply
  • Doug Lovett
    Investor · Tampa, FL · Member since 2015 · 63 posts · 59 votes
    10y
    If you want to use your Ira for some or all of the purchase, you can without having to cash it out. You can do a self directed Ira where you own the property inside the Ira. One issue is that any profits from the Ira portion of the funding have to go back into the Ira.
    1Reply
  • Frank Trigoso
    Investor · Miami, FL · Member since 2016 · 75 posts · 23 votes
    10y

    I would recommend obtaining an LLC for your two rental properties to help protect lawsuit from your tenants. I wish I could help you more. Good luck!

    0Reply
  • Steve Burt
    Consulting · Fort Worth, TX · Member since 2014 · 65 posts · 15 votes
    10y

    Hard Money Lenders can be found via Real Estate brokers, or identify agents in your area or wholesalers who sell homes to be flipped and see if they have any HML contacts.

    Is there no equity you could pull out of your other deals for this one?

    1Reply
  • Ericka G.
    OP
    Investor · Atlanta, GA · Member since 2015 · 366 posts · 283 votes
    10y

    @Steve Burt Thanks for the tip! I just sent a text to 2 of the brokers I've been working with to see if they have any HML contacts. I literally had no clue where to start on that one, so this was a big help.

    I tried to pull equity out of one of our other properties, which I purchased before getting married. It appraised with plenty of equity but my bank denied me because I don't have a traditional 9 to 5pm.  I'm kicking myself for not setting up a line of credit before leaving my job, but didn't realize my bank wouldn't let me borrow against my own property without a "job" even though I've never missed a payment in 11 years and have the same amount of cash that I'm trying to borrow in my savings acct - just don't want to use my money.  That is a whole different rant.  I hate big banks.

    0Reply
  • Richard Ball
    Real Estate Agent · Port Huron, MI · Member since 2012 · 295 posts · 82 votes
    10y

    @Ericka G. Hello! First stop talking to big banks and start talking to the Commercial Department of local banks in the area you are going to buy. You will probably have to call a few before you find the right one. They are going to want to see a Personal Finance Statement, it doesn't have to be anything fancy. Below is a link to a template of the one I use, fill it out and show them you know what you are doing. Most importantly, generally like the person at the bank so that you can have a good relationship with them, people do business with people they like.

    www.BetterDaysRealEstate.com/Forms/Personal_Financ...

    1Reply
  • Ericka G.
    OP
    Investor · Atlanta, GA · Member since 2015 · 366 posts · 283 votes
    10y

    @Richard Ball Thank you!  I will fill this out and try it at a local bank, in person.  I'll let you guys know how it goes.

    0Reply
  • Eric Hawkins
    Property Manager · Baltimore, MD · Member since 2016 · 12 posts · 3 votes
    10y

    Congrats! 

    0Reply
  • Anthony Crawford
    Flipper/Rehabber · Atlanta, GA · Member since 2011 · 44 posts · 9 votes
    10y

    @Jason Hern I'm sorta in a similar bind....trying to send you a PM but unable to...my previous colleague request is still pending (we met @ the Davinci's meet up).

    0Reply
  • Joshua Lyon
    Investor / Sales Associate / Airline Pilot · Oviedo, FL · Member since 2016 · 105 posts · 31 votes
    10y
    Ericka Grant Are you still looking at this deal? I'm an airline pilot based out of Detroit and I've been looking at properties to do this exact plan. I have great connections with multiple pilots based in Detroit and there's a constant need for crashpads. I have access to all the crew rooms to post for rent ads. I'd be interested in going in as partners if that helps your financing. PM me if your interested.
    0Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free