Investment Property - Fix and Hold

[Connor Barber]

Hello everyone. I'm new to the process and a young entrepreneur wanting to starting building wealth. Long story short my family friend is a successful property manager who buys properties in Memphis right now (I live in colorado). His proposition is to go 50/50 in a property and hold it. Now, I dont have that capital yet being 20 so my plan is to borrow private money from family in the amount of 60,000 at 7% for a year, with interest and principal due at the end of that time. The partners proposition is that I buy a property from him for 50,000 (rehab included), he will rehab it and put a tenant in it. I can either buy him out and do the deal myself (which I have to do because he only owns properties free and clear with partners and I'm borrowing the money) or I can sell it to him. I would like to buy him out for 10,000, refinance it at 70% LTV non- owner occupied mortgage over 30 years. Based on home value of 80,000 I should get 60,000 back (my initial investment) which I can pay back to my investors. I know own a cash flowing property without any of my money into it and I'll pay a property management company to manage it since I'm out of state. Thoughts? Thanks for the advice.

[Chris Clothier]

Originally posted by @Connor Barber:

Hello everyone. I'm new to the process and a young entrepreneur wanting to starting building wealth. Long story short my family friend is a successful property manager who buys properties in Memphis right now (I live in colorado). His proposition is to go 50/50 in a property and hold it. Now, I dont have that capital yet being 20 so my plan is to borrow private money from family in the amount of 60,000 at 7% for a year, with interest and principal due at the end of that time. The partners proposition is that I buy a property from him for 50,000 (rehab included), he will rehab it and put a tenant in it. I can either buy him out and do the deal myself (which I have to do because he only owns properties free and clear with partners and I'm borrowing the money) or I can sell it to him. I would like to buy him out for 10,000, refinance it at 70% LTV non- owner occupied mortgage over 30 years. Based on home value of 80,000 I should get 60,000 back (my initial investment) which I can pay back to my investors. I know own a cash flowing property without any of my money into it and I'll pay a property management company to manage it since I'm out of state. Thoughts? Thanks for the advice.

 Connor,

First let me say congrats on trying to find ways to move forward and for posting here on BP.  Welcome to the site!

I would be extremely cautious when making an investment in such low price points. You want to use the BRRR method requiring that the property appraise 37.5% higher than purchase price at some point in the future after a full renovation. I can assure you that the road to financial independence, the road to riches, the road to wealth, whatever you want to call it, is littered with failed attempts to do what you are describing. Can it be done? Absolutely. But there is higher probability of failure the lower you go in price points. In one years time a lot can change and you could end up with a property that barely appraises for what you paid and has a pot full of deferred maintenance and issues. Worst case is you cannot sell the property for enough money to pay off the family members you borrowed from.

I'm also not clear on how it would be a 50/50 deal if you have to borrow $60k to buy the deal from him at 50 k and pay him a profit of 10k?  Maybe I missed something in the details.  Just be clear and be patient.  Your proposition is very, very risky and you will be shouldering ALL of that risk.  If it fails, it could put you back for years and make for uncomfortable Thanksgiving dinners.