How to convince my parents to partner with me?

Question

My income and savings don't allow me to get into real estate alone. I've been trying to find an "out" and I managed to get my parents to consider the prospect of lending me some help but they are the glass half empty kind of people that need heavy convincing.

My parents are pretty well off so if I can convince them to assist me in the right strategy I can use it to flip my life situation around.

Long story short, the mortgage I can afford is laughable. My credit is good but I just don't make enough money. I also have almost no W2 history (don't ask) so I'm not sure I can even get a mortgage to begin with.

I pitched to them that I would split the returns if they helped with the down payment and closing costs. This means In order for it to be worth it the deal would need to go into a property with some form of recyclable equity.

The BRRRR strategy is the first thing that comes to mind. They have done a few renovations in the past in the houses they lived in where the job lasted a lot longer and cost a lot more than they were told it would. They insist that the "rehab" part of the BRRRR is very risky because of this.

Do I have a counter argument for this? What kind of shape am I supposed to buy a BRRRR house in?

Mike Dymski · Answer

You don't convince successful people to partner with you. You build a track record of your own life successes and then they will want to participate.

John W. · Answer

You have no track record in rehabbing homes. Their main concern is your inexperience and it is a legitimate concern. And if your rehab does go south, it will be hard to pay them back with low w-2 income.

Jon Holdman · Answer

Even if you can get a hard money lender to fund 100% of the purchase plus 100% of the rehab cost you will STILL need significant cash of your own. A HML will charge you points. Those are paid at closing. Four points (four percent of the loan amount) are typical, but can vary a lot. Most HMLs will withhold most of the rehab budget. You then do and pay for the work and they distribute the rehab money in "draws" as they inspect your progress. So you need cash to fund the labor and materials until you get reimbursed. You'll have holding costs like utilities.My rule of thumb is that if the HML will fund 100% of purchase and rehab you should have 15% of ARV in your own cash. If the HML has down payment requirements, add that to the cash needed. This is a capital intensive business.If you're doing BRRR you need to be able to qualify for that refi loan. And when you do the refi, you may or may not be able to get back all the cash that was invested up front. The point of the refi is to get out of a 15%, 12 month loan and into long term financing. If you can get some cash back, great. Current fannie mae guidelines limit refinances on single families to 75% of value. So, if you've hit all your numbers, and the HML gave you 70% of ARV but charged you four points, then you'll be doing good just to pay off the HML and get back your points on the refi.The only way I'd borrow from friends or family is if I was absolutely willing to do whatever it took to repay the money, regardless of the outcome of the deal. If that's a second or third job, so be it. Whatever it takes.

Caleb Heimsoth · Answer

Colin C leamy long story short your parents are mostly right. An extensive rehab is risky if you don’t know what you’re doing. At this point I think you need to educate yourself much much more before trying to convince your parents to give you money. If they did give you money what would the deal be really? They pay for the Dow payment and rehab costs? If that’s what you’re looking for that sounds like a bad deal for them. I would also look at increasing your income.

Kevin Coggins · Answer

I would never risk my family or friends' money, without having experience with what I'm doing. Unless I've done it before and KNOW there's a high probability of success, I'm not making any sort of recommendations or asking for an investment.

John W. · Answer

My parents are wise with their money and they only lend to me because of my track record. They've seen that I've been good with money since I was young, never needed them to bail me out, and also successful with my rentals. They write checks with little concern. So a proven track record is probably what they want to see.

Account Closed · Answer

@Colin C leamy I can't convince my parents to do anything, let alone give me their money for something as "risky" as investing in property. LOL.To give you their funds someone has to be a believer. Best way to make anyone a believer is to gather enough knowledge and ability to be able to put together a compelling story. If you could do this, you could probably get money from a lot of people, not just your parents. In fact, getting money from others who are already believers in REI might be easier if you could establish credibility with them.Good luck!

Account Closed · Answer

When I needed to borrow money from my parents once, I got a loan through their bank in my name and had to pay it back. My parents pledged their property as collateral for the loan.

Rich S. · Answer

There is no doubt many is this thread are right in that track record makes everything easier. The 203K loan is a good strategy because it does bring a 3rd party in to verify numbers and provide information to hopefully ease your parents worries. In my opinion, there are lots of ways to get things started, you just have to find the one that works for you. There are many folks who have gotten their start in REI by doing something most said couldn't be done OR taking a risk many others wouldn't take. It is all easier if you have high W-2 income, lots of savings, etc. as it opens up more doors, but you don't have that... my advice keep working to find the strategy that works for you, just because it doesn't work for others, doesn't mean it doesn't work.

Mike Dymski · Answer

Most everyone on this thread is trying to help you understand that track record does matter. Show them that the rehab is not going to go sour by doing it many times yourself without the rehab going sour.You can not convince them for the same reason that none of us can convince you...people believe what they see and experience...track record, not what you tell them.