All Forum Posts by: Jessica Sorensen

I need some advice on whether or not to take a deal...  My husband and I are in the market for our first home purchase. The goal is to buy our first property, then a few more that cashflow, and eventually replace our W2 incomes with incomes from rentals. (That's the dream isn't it?) 

Our market is really hot right now. Very few properties cash flow without lots of cash put into them up front. (30, 40, 50%+ down payments.) Even then, lots of properties go above asking price for all cash. Simply put, to get a cash flowing rental we need CASH. 

With that in mind we've been targeting properties that would allow us to keep up a high rate of savings. In 2 or 3 years, we should have enough for a down payment on house #2, adding cash flow to savings until we purchase house #3, and snowball it from there. HOWEVER, we have an opportunity to purchase a home from a family friend for about 60% ARV. We would gain at least $50k in equity after completing some minor upgrades, and once a retail project down the street is completed we could have even more.

But the purchase price would still max out our budget and nearly obliterate our savings rate. Not to mention it would nearly double our living expenses, making it that much harder to replace the W2 income. I'm totally torn between slowly building up a healthy chunk of liquid cash (for investing, emergencies, whatever) or gaining instant equity (and lots of it). Given that the next goal is to purchase a second property, what should we do? How could we use this equity to our advantage? Is it worth it?

I sadly won't be able to make it tonight. Hope everyone has a great time and I'll catch the next one!

I will PM you!

@David Oldenburg You're right. If the ARV was that tight, I probably wouldn't go for this deal. I just threw out some numbers for an example. My main concern was if I borrow $100k @ 10% (owe $110k back) how that would be structured. Thank you for the tips! I'm looking forward to the meetup.

Thanks @Bill Gulley 

All these "getting started with no money down" guides just say "borrow from friends and family"! They never really get into how complicated of a process this can actually be!

Thank you @Jeff S. That's helpful information. I have spoken with a realtor who works regularly with other investors, so maybe he can point me towards a broker. 

What if I'm purchasing a property through a wholesaler? Are realtors/brokers usually involved in that process?

@Jeff Rabinowitz 

Thanks for the advice. Is it typical for the person doing the borrowing to approach a potential lender with the mortgage and note, or is that something the lender should look into for themselves? Maybe I recommend to my friend (or a potential lender) that THEY can come up with those documents? Or would it be more "professional" for me to provide them up front?

@Chris Uhler 

Got it. Thanks so much for the advice!

Thanks @Chris Uhler ! So would it go: Find property, get property under contract, find title company, present deal to private lenders? Or should I discuss this with a title company before I put in an offer?

I'm about to start making offers on some properties for my first fix and flip! I have already spoken to some friends and family members about partnering/lending the cash to do the purchase and rehab. Is there a standard contract or form that I should present to them when I have a property under contract and and am ready to buy?

For example, let's say I am purchasing a property for $60,000. I expect to spend about $30,000 on the rehab, and another $10,000 on inspections, closing costs, etc. The ARV is at least $125,000. My friend has agreed to loan me $100,000 on the condition that I repay him $110,000, due when the property sells or after 12 months (whichever comes first).

What's the best way to do this transaction "correctly"? Do I need to get a lawyer involved to draw up a contract, or would a simple typed-up document stating the above and signed by both of us be acceptable? Is there a standard form available online? (I'm in California, if that matters.)  I had planned to get a property under contract, then seek out the cash, but is it better to have it in writing first? Any complications if I split the loan by having Friend #1 loan only $70k, and Friend #2 loan the remaining $30k?

Obviously I trust this person and they trust me with their money, but I'd rather do this in a professional manner and not informally as neither of us has ever lent or borrowed money that wasn't through a bank before. Any of your tips and suggestions are welcome!