My hard money cash flow rental empire business plan?

Question

My awesome hard money rental property empire.

Ok, first things first, I have nearly no savings, no verifiable income, but lots of heart  :mrgreen:

My idea is that I would find a property, oh let's say it is asking for $40,000 and to move a tenant in requires $15,000.  ARV would fetch a fantastic $85,0000.

So I go to a hard money lender and I need uh, [trying to remember this deal off top of my head] $40,000, plus $15,000 = $55,000 [yes i have to do math as i go] the LTV would be 65% [right?]

I rehab it up, trying to do some of the repairs myself [that's like a really big joke, at this point] but come in right at $15,000 as projected.  I move a tenant in.  Then I waddle over to the real bank and I somehow show them the tenant, rental agreement and they pay off the hard money loan, and pray to god I somehow walk out with some money as well.

Rinse / repeat?

Someone said, I'd fail on 2 instances:
1. hard money lender would never lend me [ a noobie ] anything, except a phone to call someone that cares
2. the bank wouldn't care if donald trump were renting from me, because I have no proof I exist... financially speaker.

They did suggest however, that I might snatch a Vegas investor and parade him in front of the hard money lender and promise them, he's the one doing everything.  But, that still doesn't cover the bank.

Ann Bellamy · Answer

On the hard money side, you are going to have to find a true hard money lender who is local to the property.  If your ARV is truly 85K I suppose there is a slim chance you could find a lender who will lend you 100% of purchase and rehab, although honestly, I don't know of any HML's who will lend with you having no skin in the game.

Since you are new, it's a guarantee (from the HML's perspective) that you will take too long to do the rehab and rent out.  So that's another count against you.

With no income, your exit strategy out of the hard money is not viable, since you are right, no bank is going to refi you with no income.  Even if you have rental income from the property.

So the only HML's that will consider your deal are the ones that hope they have to foreclose.  You don't want that.

Suggest you find a money & credit parter who knows and trusts you enough to front the downpayment for the hard money loan and who has the income and credit to qualify for the refi.

On another note, doing the work yourself will drag out the rehab process and increase your carry costs:  taxes, insurance, HOA fees if applicable, electricity, heat if in winter, water/sewer.  Not to mention hard money interest.

Every project I've ever funded where a new investor decided to do the work themselves ended up taking way too long, eating up the profit in carry costs and selling for way less in a declining market.  The longer you hold, the lower the end price, both for resale or for refi.

Sorry to provide such a negative post.  Hopefully there are some nuggets for you to think about.

Diego Mitchell · Answer

I'm new to this as well. Wholesales seem to be a good way to build up cash reserves. I will look into that area.

Account Closed · Answer

You may find a hardmoney lender to do the front end financing, but the back end refi is going tough.  It's tough for experienced investors with full time jobs to get cash out refi's on rental properties these days...

The wholesaling gig would be a good way to raise money, but make sure you know what a good deal looks like.  The numbers must work if you want to have end buyers viewing you as a reliable source for deals.

If I were in your position, my priority right now would be to get some verifiable income and clean up my personal balance sheet before dabbling in real estate.  It'll make your life much easier I'd think.  But, everyone has their own way so find what works for you.  Good luck!

Jason S. · Answer

There's a lender in NV (few other states too) that will do with $0 down and I believe they have a longer term tenant loan also.  High fee, but what do you expect in NV.

Message me.

James Aldridge · Answer

There are a lot of good forms and contracts on here for wholesaling. That is a start. It only takes one wholesale to get the cash you need if it is the right one...

Kevin Cardinale · Answer

Wholesaling sounds great.  I have so many things floating around my head ... I was looking at it, but there was something about it, I thought I couldn't do ... can't remember.

Oh thanks for the heads up Ann.

D'andre Prosise · Answer

Hello Kevin,

I'm also new to the game, wholesaling might be your best route just to get your money up.It also gives you time to learn more from people that are in the game. I also have alot of heart but learned the hard way its best to be humble sometimes. On the bright side of things your own BP where the best in the game reside, soak up there knowledge then apply and repeat.

Good luck

Dan Schemerhorn · Answer

Ann is spot on. Plus a bank won't count the rents till you have a two year track record, but they will count the expenses against you. Smile

Good luck,
Dan Schemerhorn

Mike Nelson · Answer

I agree with Ann, this was my exact same plan a couple of months ago. Although I have a job, at the time I didn't have the down payment for the hard money loan. So, I ended up wholesaling a property so that I could have some cash in the bank. I'm getting ready to close on my first deal and I should net 22k (not bad right lol) now this plan seems a little more realistic. Good Luck!!

My hard money cash flow rental empire business plan?

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