Creative financing tips?

Question

I used dealcheck on a multiunit in the area and played around with it till i could cash flow positive $250/mo. With a 3.5% fha loan i would still need about $14,500 for a down payment. Any advice on creative options to finance this. I have never had an actual deal done. Currently work a day job and have no capital to start off with. Should i just call the agent and see if the seller is willing to finance somehow? There's a lot of things im unsure of and any small mistake will hurt since things are tight

Kevin Smith · Answer

I would look for a SubTo or owner carry property. You need to have reserves in either cash or credit regardless of the situation. 20k can go away in a blink. Only 250 a month is not enough meat on the bone for most to JV.

The only creative way I can see (obviously not knowing enough details) is an owner carry with you as the operator and a JV partner as the financial backing. I would push for very low or no money down but having a Realtor that needs to have their fee paid it may still not work.

Look up the owner if possible through truepeoplesearch.com and call them up directly. Maybe they have other properties they are interested in selling without a Realtor involve. A lot of tired or retiring landlords don't want to pay 3% to a Realtor plus Capital Gains. It may be to their benefit to carry a note on it.

Jacob Thorpe · Answer

make more friends that have money, see if theyre willing to do the deal with you if you can find a way to make them money without them having to do any work.

Gregory Schwartz · Answer

Jumping into REI with no capital is not worth the risk. I'd recommend having enough to close on the deal + rehab + $5k in reserve as a minimum.

Bryan Stengel · Answer

Hi Willie, I think it would be best to wait until you have more capital to put down for a multi-family property.  You said that you are applying for an FHA loan so it sounds as though you'd be living in one unit.  Unless the property needs work and the seller is desperate, you're not going to find a seller willing to do any sort of seller financing on their end.  As Stuart mentioned, there are several issues that might arise with the property, which could definitely impact your cash flow.  If you are looking at this property from a residential and rental perspective, then it may work as long as you are willing to put your own income into the property.  If you are hoping that this property will stand on its own with you living in it and not having to put your active income into it, then it might not be the best option for you right now.  You also need to consider that at a lower percentage of money down you will be paying a Mortgage Insurance Premium or MIP.  In addition to the interest of the loan, you'd also be paying this as well.  I would strongly consider building equity to make a stronger down payment and further decrease your monthly cost.

Stuart Udis · Answer

Based on what you shared you are not financially qualified to own real estate. Even if someone in these forums were to teach you a creative financing strategy that required zero out of pocket cash and the seller was willing to accept those deal terms, you still aren’t qualified to own real estate with your current balance sheet. What happens if the roof has to be replaced? What happens if the water service line has to be replaced? What happens when you have vacancies and have to turn over units?

Purchasing real estate is capital intensive. While there could be avenues to acquire real estate creatively with less cash operating real estate properly is capital intensive. Most fail to consider what goes into owning and operating real estate once it’s purchased and solely concern themselves with how to buy the property. Those with little to no experience should have even larger amounts of reserves in place before they purchase real estate.

Also, if the property doesn’t cash flow or cash flows poorly as your summary indicates, coming up with a creative financing strategy that allows for greater cash flow doesn’t necessarily make it a good purchase or investment. It merely means you will likely have a difficult time refinancing the property to a traditional lending source. This is another issue I see with those who seek out alternative financing because it’s the only way they qualify to make the purchase. Along with not having sufficient funds to operate their real estate they fail to consider what happens when the property must be refinanced. If the best you qualify for is alternative financing when the purchasing loan matures you will likely be treading water barely able to stay a float.

Creative financing tips?

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