My plan to use 100% OPM to fund my first deal. What am I missing?

2 Replies

I Noticed a bandit sign for an "Investor Special", so in the spirit of hustle I called immediately. The property is a 3/2.5 that needs moderate rehab; can easily add a fourth bedroom and turn the half bath into a third full, update the kitchen and bathrooms, move the laundry from the kitchen to a dedicated laundry room, throw up some paint and other cosmetic stuff. Biggest thing it needs as of right now is HVAC. The seller is offering an Interest only loan for the full cost of purchase and rehab ($27K asking, $20K-$40K rehab) with 18%-20% down at 10%-14% interest. We are going to Offer $20K, with $40K rehab, $11K down, at 10% interest. We don't have 11K or the $500 a month for the interest payments so our plan is to find a second investor to put the initial $11K down and make the payments while we complete the rehab (6 months-ish or less hopefully) For a rough total of 14,000. Once the rehab is complete the plan is to refinance which hopefully will play out something like this....

ARV: $88,000

Refinance: 66K (75% of FMV) with a 3-4% APR.

Pay Off Lender: $49K

Pay Off Investor: $16K ($2K profit)

Remaining $1K goes to an emergency fund for the property.

From there we will either rent it out or offer a lease option to buy or maybe just list it for FMV and take our profit to fund our second deal.

What are you thoughts and advice? Any major flaws to this plan?

Thanks!

Howdy @Nicholas Caldwell

My 2c’s.

1.  Do you have an investor/Private Lender lined up that is willing to loan you the money without receiving anything payment until the property is refinanced?  This person will be in second lien position with nothing but a piece of paper to hold you to.  I don’t know anyone that would take that risk.

2.  There are other costs that you have not considered that must be accounted for.  Closing costs and Holding costs (other than interest only payments).  Property taxes and insurance, utilities, etc ... must be paid.

3.  Are you planning to do the work yourself?  Is this your first deal or have you Rehabbed properties before?  If you have then you stand a better chance of getting something. 

4.  If you have no skin in the game and no track record what you are proposing will be extremely difficult. 

5.  The only other option you may have is to offer equity in the deal.  Like a partnership.

All great points. So I forgot to mention it’s owner financing. Also come to find out they aren’t offering to loan the rehab costs. They are out of state and have not started lending for rehabs in ga yet I guess.  So exploring a partnership at the moment. So as of right now it looks more like a $27k note with “18% down” which will cover loan origination fee, closing cost, and a portion of the principle loan. Interest only loan at 14%. And I need to secure the rehab costs. I had not considered insurance.  No the only way I’d do a rehab on my own is if i was house hacking. It is my first deal of any sort. Thanks for the feed back!

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