I'm not telling you to read this... but help!
I think this is a strong deal, I'm not sure though
I have a 4 plex under contract that I will secure with a combination of hard money, seller financing, and private money. I'm having trouble generating interest from prospective silent partners, and since this is my first real estate transaction I wanted to know if I am being naive or just placing my solicitations in the wrong place.
Before I was offering a 40% ROI on a $40k investment with monthly payments for 12 months. I am now offering a 75% ROI on $40k ($800 monthly and $20k at refi + $40k original loan amount). I can offer this because I bought the property $53k under market, and its gross income is $3k monthly.
I have all of the info that a silent partner would need to see to make a decision, I'm just not getting any bites.
With what I have explained, am I offering a good deal to a silent partner, or am I being foolish? I post here and on craigslist, am I in the wrong place?
Thank you in advance
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#3 Real Estate Deal Analysis & Advice Contributor
- Rental Property Investor
- Mercer Island, WA
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#3 Real Estate Deal Analysis & Advice Contributor
- Rental Property Investor
- Mercer Island, WA
@Jeffery Holmes-Rice I saw your other post when you made it and almost replied then. I'm not at all surprised you're getting no response. Sorry, but the risk for the lender here is through the roof. I can't see that anyone would take this deal no matter what you offered.
Based on what you're asking for you're in no position to be investing in rentals. Sorry, but that's the reality. "Investing" means putting YOUR money into the investment. You're not only putting in no cash of your own, you're trying to borrow your working capital.
You're looking for a lender to be in third position behind the hard money lender and the seller. Personally I wouldn't even want to be in second position, let alone third. If I were your HML, I would not (and do not) fund a deal where there is someone with a lien on the property behind me. If I was your HML and discovered you had placed a lien on the property behind me I would immediately start foreclosure as this violates my promissory note.
You say you're buying this place for $147K and the ARV is $200K. You make no mention of the repairs you're going to be doing. Based on your number (total of loans is $157K, purchase is $147K, and I'd estimate closing costs at about $5000) you don't seem to be planning any renovations. That tells me the value of this property is a lot closer to $147K than $200K. Even if the value is $200K, when you go to do the refi you might get a new loan of $160K. Probably more like $140K. And that will have costs. So, that's enough to pay off the HML and the seller, but not me.
So, this "silent partner" is really making you a loan that's underwater right from the start. With any loan on real estate the lenders recourse is to foreclose and take the property. If you default, I spend $10K doing a foreclosure, what do I get? I get a property worth $147K with $117K of other liens on it. If I can manage to sell it for $147K, netting maybe $135K after selling costs, I'm left with $18K after paying off the senior liens. On my investment of $40K plus the cost of the foreclosure. Sorry, that just doesn't fly.