Money First vs. Deal First

Buying & Selling Real Estate
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Money First vs. Deal First

Alex Jackman
Chicago Land Area · Member since 2018 · 10 posts · 3 votes

Question: Should I network to find a partner and hard money lender BEFORE or AFTER finding a deal?

Background: I am new to the investing world with only 1 renovated 3-flat in Chicago and 15k in savings. In order to finance my next deal (fix & flip), I need outside, non-traditional financing (equity partner and hard money). Here's the problem... 

1) I can not offer on publicly listed properties without proof of funds

2) I do not want to promise a homeowner of an off market property the world and not be able to follow through

3) I have had challenges finding a partner willing to take a risk on me (someone with little experience, some knowledge, & a lot of drive) without a deal

I feel like in order to attract an equity investor with my level of experience, I need a deal with so much margin they would be crazy to say no. However, to find a deal I would need to enter into a contract that I might not be able to perform on.

My Options: 

1) Do I contract a property without guaranteed funds and then market it?

2) Do continue networking and wait to find a great deal until I find someone to financially back me?

3) Is there another strategy or option I am missing?

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Canesha Edwards
Developer · Atlanta, GA · Member since 2014 · 475 posts · 424 votes
5y

@Alex Jackman

Hey Alex-

Here’s my 2 cents. I say you actively do both, network and look for properties. I would say your best bet is off-market. If you have $15k saved, you have enough funds to lock up a property. Potential partners will take you serious if you come to them with a property under contract. You should be able to lock something up for a $1k or so. Once you have a signed contract start it’s easier looking for partners.

Or have you thought about seller financing or partnering with the seller? You could offer seller’s equity in the deal in lieu of buying the property.

Even with properties that are listed, you could still ask the agent if their client would be interested in seller financing.

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  • Canesha Edwards
    Developer · Atlanta, GA · Member since 2014 · 475 posts · 424 votes
    5y

    @Alex Jackman

    Hey Alex-

    Here’s my 2 cents. I say you actively do both, network and look for properties. I would say your best bet is off-market. If you have $15k saved, you have enough funds to lock up a property. Potential partners will take you serious if you come to them with a property under contract. You should be able to lock something up for a $1k or so. Once you have a signed contract start it’s easier looking for partners.

    Or have you thought about seller financing or partnering with the seller? You could offer seller’s equity in the deal in lieu of buying the property.

    Even with properties that are listed, you could still ask the agent if their client would be interested in seller financing.

    1Reply
  • Alex Jackman
    OP
    Chicago Land Area · Member since 2018 · 10 posts · 3 votes
    5y

    @Canesha Edwards all very great ideas. I have offered owner financing on a few properties with no luck. However, I really like the idea of owner financing. How do you normally structure an owner financing deal? What Terms, Rate, balloon payment/no balloon?

    Also, really love the idea of partnering with the current owner. What a fantastic idea that I have never thought of. You can really create a win win there. That would be especially beneficial in higher priced areas of the Chicago / Northshore market where I cannot get lending. Again, do you have any examples you could share on deal structure and/or how you proposed it to an owner?

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  • Canesha Edwards
    Developer · Atlanta, GA · Member since 2014 · 475 posts · 424 votes
    5y

    @Alex Jackman

    Seller financing and how to structure the deal depends on what the seller is looking to get. You could find sellers that want long term income so you could structure the deal without a ballon. If you find someone who is willing to do a deal, the terms can literally be whatever is fair and legal. It’s up to you and the seller.

    I recently offered a 50/50 JV deal to a land owner who owns vacant land behind a property I'm developing. Some people may say 50% is too much equity but you can determine percentage. There's no minimum requirement.

    Hope this helps.

    Shoot me a PM if you ever want to talk further.

    Best,

    Canesha

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  • Jonathan KlemmBusiness Member
    Moderator
    Contractor · Chicago, IL · Member since 2016 · 4k+ posts · 2k+ votes
    5y

    @Alex Jackman - Lock up a deal and then let me know lol.  I have access to capital and have the experience to get deals closed.

    Definitely shoot me a PM and we can connect on your plan and strategy.  

    [email protected]
    Quality Builders4.966 Reviews
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    1Reply
  • Dax Mickelson
    Developer · Southern Idaho · Member since 2020 · 24 posts · 8 votes
    5y

    Is there some law in Chicago that makes your "1)" law?  If not, there is no issue with you "tying up" a property in a potential deal (get it under contract but leave yourself some due diligence time) and then search for financing.

    1Reply
  • Alex Jackman
    OP
    Chicago Land Area · Member since 2018 · 10 posts · 3 votes
    5y

    @Jonathan Klemm I will shoot you over a message. Thank you for responding!

    @Dax Mickelson There is no law (that I know of). However, morally, I would not want to promise a distressed property owner something I cannot follow through on. However, I think being transparent with the homeowner on the possibility of not closing is what I need to do. Thanks for your response!

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  • Dax Mickelson
    Developer · Southern Idaho · Member since 2020 · 24 posts · 8 votes
    5y

    @Alex Jackman:  Absolutely!  No need to misrepresent.  Most potential home buyers don't have "for sure" funds until the deal is under some sort of contract.  I think getting a property under contract and then, during your due diligence period, finding the cash is just a normal way of doing things.

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