Possible first poperty, but where do I get the $$$?

Question

So, I think I may have found a good first property to acquire. So far, I think it'd be the best deal to purchase it and rehab it. It's FSBO. A lawn sign lists the owners phone number with the asking price of $60,000. The house clearly needs work on the outside, and judging by that, the inside will more than likely follow suit. If a walk through goes well, I'd be comfortable making an offer. That being said, the property will likely need about $30,000 worth of work.

I have little or no money. So now my question: Where do I get it? Mortgage it through the bank? Hard money? Please help with recommendations!!!

I have little or no money. So now my question: Where do I get it? Mortgage it through the bank? Hard money? Please help with recommendations!!!

JD Martin · Answer

My experience: with little or no money of your own, it will be difficult to get started. Your post makes me ask these initial questions, some rhetorical, some not:

* Do you own your own home? Does it have any equity?

* Do you have experience working with others rehabbing or flipping houses?

* Do you have any life savings anywhere to tap?

* What leads you to believe it needs $30k in work? How did you come up with this figure?

These questions are really for you to think about. If you've never rehabbed a house before, and haven't been inside, how do you figure it needs that level of rehab? Maybe it needs more than that - maybe less. Point being, what experience do you have to make this kind of educated guess?

Without any money, those are the kinds of questions anyone - if you can find anyone - is going to be asking you before giving you any money. If you are willing to bet 25% of your own money, you will have a much easier time finding someone willing to take a gamble on your skills and bet the other 75%, but if you have nothing to put in, what is in it for the lender? You buy the house for $60k, you find you were right about the $30k it needs, so now you've got $90k in it but find that you're only able to rent it for $600/month and that it has negative cash flow. You decide you don't like negative cash flow, and quit making up the difference, and the bank has to foreclose on the property.

I'm not saying this is what you would do, but this is the scenario anyone willing to lend money is going to go over in their head. Unless you find someone who just inherited a big pile of money, most people with money didn't get it by lending it to high risk, low return endeavors.

20% on $60k is not a lot of money - $12,000. If you don't have easy access to 12 grand, you are probably not ready to buy. I would suggest a second job to save up some cash for playing with first. It sounds like a hard line to take, but it is not easy cake for people who have capital and know what they're doing, much less those who haven't done any properties and don't have any money.

Justin Tahilramani · Answer

@Mark Hoffman - So real quick analysis:

Purchase: $60k

Rehab: $30k

Holding Costs: $5k

Realtor Fees: $5k

And.....you ran out of equity......

Justin Tahilramani · Answer

@Mark Hoffman - Why would you make an offer on a home that you have no way to buy? You are simply wasting your time as well as the sellers time. Your posts don't demonstrate that you have deeply analyzed this "deal." The other posters are 100% correct - how do you know this is even a deal?

In a market economy you're not the only one out there looking for a steal of a deal. If its so good - why hasn't a cash buyer bought the place already? Im not saying that you have not found something good, but don't be fooled, EVERY market has savvy investors with DEEP pockets. If they aren't interested you should wonder why....

Will Barnard · Answer

You are putting the cart before the horse here. Before shopping for investment opportunities, you should have your funds lined up first. Also, what info do you have that tells you this is a possible good deal? What is the ARV?

There are a number of ways to fund this deal but if you have no money and no experience, that makes it tough. With hard money, you will need capital in the deal and capital reserves.

Private money and or a partner is your best shot.

Will Barnard · Answer

And you still have closing costs, the possibility it sells for less than $100k, and the possibility the rehab goes over $30k.

Basically, you need to buy this property for about $38,000 IF the exit is $100k and IF the rehab is $30k in order to make money on the deal and stay safe. Plus, the holding costs can fluctuate dramatically depending on what kind of rates and terms you have on your borrowed funds and how fast you can flip it.

If you wanted to wholesale the deal, you can use your standard realtor forms (provided by an agent or perhaps title/escrow company) or can have docs drafted by your attorney.

Christopher Telles · Answer

Well you actually could do this if:

1. You bought at a price that nearly any HML or private lender would lend on the property

2. You first knew what the HML's or private lenders guidelines where for a no brannier loan

3. You could demonstrate that the acquisition at that price using a qualified team to improve would sell @X for exit strategy #1 or in exit strategy #2 you could rent it @Y market rents and then refinance it using conventional financing.

Not easy when you don't have the experience, but you might find some lenders who will lend on it if the deal is sweet enough that their loan is soundly secure.

As others have said, you'll more than likely need to show some reserves to cash flow debt and expenses even if you were to find a 100% LTC loan.

Mark Hoffman · Answer

Thanks, @Christopher Brainard. ARV likely $100,000 to $110,000 by comps.

Christopher Brainard · Answer

@Mark Hoffman

The problem is, you're putting the cart way before the horse. Before you buy any piece of real estate, you need to know what the value would be after it is repaired. You need a good estimate of the repair costs (you can't just guess based on looking in windows). You also need to know how long it is going to take to repair and how long it will take to sell, so you can estimate your holding costs. Once you know this information, you can determine if it is a good deal and how you would go about structuring said deal. The offer price of the owner is irrelevant, because that needs to be driven by the after repair value (ARV) and the cost to repair.

If you have no money, you aren't going to be able to get a bank loan. Hard money is a possibility, if the property meets ARV requirements of the lender. Private money is also possible, if the property is appealing to investors. Owner financing is always an option, but is pointless if the deal isn't sound and if you don't know how to flip a property. There is a ton of resources available on this website to learn the basics, but you need to learn before you try to grab that first deal. Leaping before you look can be very disastrous and put a swift end to your investing career before it even starts.

-Christopher

Mark Hoffman · Answer

I wasn't going to literally go in there and put in offer down when I don't have the money to back it up. I know that doesn't make sense...... that's why I asked what my options could be.

Mark Hoffman · Answer

here's another question... if I wanted to wholesale the property, where do I get a purchase contract and an assignment contract?

Possible first poperty, but where do I get the $$$?

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