Using Investor Money for Multifamily/Buy and Hold

[Davon Johnson]

Hi Everyone, 

I am looking to buy more properties and have spoken to other investors/family about. Between both cohorts I anticipate having access to about $200,000. My goal is to use that money for multi-family/buy and hold properties. The nuance would be that I would need to pay investors back their money in 6-12 months. Can anyone advise me on how I can both pay back investors and keep the property. 

I am aware of cash-out refinances, but from my research there's typically only enough equity on single families to do this. Maybe it is my market (Live in New Jersey), if this is the case, please let me know which states and cities the cash re-finance method may be more conducive in. Just curious what the numbers need to look like to make the deal work in real life and how to get a seller to actually come to a number with enough equity to pull out all the investor cash. 

Thanks so much in advance!

[Natalie Schanne]

@Davon Johnson - you can pull off cash out refinances in any market. You will be looking for a property where the deal is so good that in 6-12 months, you are all in for 65-70% of its current value.

In New Jersey this might look like buy a four unit for $500k with owner occupied loan, 15% down 3.25% loan (or even fha at 3.5% down but you are likely to overpay to a seller for a fha loan), rehab for 100k, property appraises for $860k after renovations and rent increases. So if you did a 75% LTV cash out refi with closing costs, you can pull out $600k you have into it (fully repaying the 200k cash). Airbnb or furnished rentals can increase your cash returns. Almost all banks will want to see a 12 mo lease and rental history before financing you. (Unless your w2 is so good the property income doesn't matter for the loan).

Case in point, friend bought a duplex in New Jersey for $250k in May 2021 and looking to cash out refi at a 350k value or higher now. $350k x .75 cash out is 262.5k. Minus closing costs for the loan, new title insurance. Mortgage will be like $2200/mo and rent is $4200/mo and there will be effectively no $$ left into the property. This is a quintessential BRRR. Some large investors have been able to do this with large multifamily properties.