Find the deal first vs. getting financing/partner in place first

[Bill Fleener]

I am a newbie that has made the commitment to start purchasing multi-family properties beginning in the new year (2017). I am stuck and have some general questions to ask to help me get on track. First, I don't personally have the money to buy/ finance a property, so I'm going to need someone for the down payment and rehab money to make the deal work. Using the BRRRR strategy, my plan is to buy the property right, rehab, rent it, refinance it after a year or so and repeat. I have been told by some investors not to worry about the money....... go and find the deal and the money will be easy to get. Is that the best strategy for me to get going, or, should I find someone that I could partner with upfront and get the financing worked out before I find a target property? Chicken vs the egg dilemma I guess.

I also wonder what is a typical partnership split when this kind of arrangement is put together? How much interest should the investor expect to get back from his initial investment, and, what kind of equity would I need to give them to make this kind of deal work? I have heard 10-12% simple interest per year and 50% of the equity. Is this reasonable? I look forward to your thoughts? Thanks.

[Glenn D.]

@Bill Fleener

Welcome to the game!  I agree with @JD Martin that to look for deals and then find the money is bas akward, UNLESS you personally know plenty of people with money and they have said when you find one let me know.  Which would be fantastic but most everyone I know has a harder time finding the funds than finding the deals.  You being a commercial RE broker you may have people who like you with deep pockets who are willing to gamble on you as a newbie to real estate investing.  You tell us.

Think of it like any other purchase i.e. car shopping.  If you go out and find a great deal on a car, then sit down at the table, try an negotiate a good deal and get financing, 1 - your chances are better at getting a good deal if your waving cash and 2 - if you find out you can't get financing not only did you waste your time and the sellers time, BUT someone will quickly be by to buy that vehicle you fell in love with.

Opportunity favors the prepared!

As for the typical split, as I say all the time "It depends".  It depends on the type of deal, the quality of the deal, the person lending and the trust or relationship to you.  Everything is negotiable and is usually dependent upon the relationship you have built or not.  10% - 12% is pretty common and usually requires points and typically will want you to come to the table with 20% of the deal.

My mother-in-law loaned me money at 0% interest, with no time frame and no paperwork, because she knows me, knows that the deal was good and trusts me with her money.  I paid her back in 6 months and gave here 12.5% (25%per annum) because I love her and want to be a blessing to her too.

On one of my 1st deals I borrowed $X at 25% for 12 months but the lender also gave me free labor on the rehab which to me was worth way more than the interest I paid him. 

So it all depends.

May your hard work cross good opportunities.

Glenn