can i offer equity % for down payment assistance on multi in LA

Question

hi there, im looking to get feedback on offering a percentage of equity upon buying a 2-4 unit property in my name in here in LA. i will owner occupy and eventually cash who ever the investor is out or upon refi or sale of the property. this is not a straw buyer move. i just basically have no down payment at the moment because i run a small business and seem to be breaking even each month. but im ready to purchase a multi fam property here in LA and surrounding. we can discuss property and or loan type yet it will most likely be conventional loan on a 3-4 unit in need of update. i have 680+ credit score, $126k / yr income,

in plain english.... i need assistance with the downpayment on a 2-4 unit multi family purchase and would like to make a safe and fair offer of a portion of the equity in the property. dont hesitate to repsond, just keep it positive :)

in plain english.... i need assistance with the downpayment on a 2-4 unit multi family purchase and would like to make a safe and fair offer of a portion of the equity in the property. dont hesitate to repsond, just keep it positive :)

Christopher Abernathy · Answer

Thank you all for your replies. gathering the Responses here, i would open an LLC for this property, yet i WOULD owner occupy, and most lenders i know will accept downpayment from gift letter of friend or family. @Terrell Hill i like the value add option, so in essence we both take title if they choose to and qualify.. meaning (they do not have too many properties in their name already). i would do a 6-18 month rehab where the debt partner can recoup all of their investment and interest at that point or can stay in the deal partially and passively.  Also the downpayment i am seeking would be minimum $20k and maximum $40k i would repay $43,000 if we refi upon 6months and $47,000 if we reach 18 months before a refinance. so a Flat 15% for 6 mo and 17% for 18 mo.

Theo Hicks · Answer

Hi Lawrence,

It depends on how the partnership between you and the investors is structured. You would likely need to speak with a securities attorney is the investors are entirely passive. If the investors have another role in the deal, it is a JV.

Interest rate depends on many factors. Could be 2%, could be 12%.

Lawrence L. · Answer

@Theo Hicks Would you still need to confirm with a lender about third party funds for a downpayment for a  non owner occupied property and when you tell these people that they will be debt partners what  interest rate would you give a debt partner. Final question, for the debt partners would you put them on title and insurance are just one. Thank you for your insight and help.

Theo Hicks · Answer

I would confirm that you can secure an owner-occupied loan with 3rd party funds. If so, based on your explanation, they are debt investors, so I would offer a fixed interest rate with a defined term length.

Lawrence L. · Answer

@Sam Shueh so lets say as you suggest call everyone you know...You need 100,000 for a downpayment you call your phonebook and 10 people say they will lend you 10,000 each. Would you just offer them simple interest on there money and how would you legaly set it up so all bases are covered theres and yours.

Sam Shueh · Answer

Suggest you call everyone you know see if they will cough up some money.  It is breakeven or better chances the investor will want more skin in it (e.g. 80-20%, 90-10%), and you need to run the operations free to earn your share. It will be a llc.

Brian Ploszay · Answer

I would not purchase real estate in the Los Angeles area if you do not have proper funds.  Be careful on this one.

You'll have to find a private investor / lender who will do this for you.  It might be hard.  If you give them equity, then they may have to go on the loan with you.  Few investors and lenders would want to participate in an unsecured loan.

One more idea:  properties in the 2 to 4 unit range may qualify for FHA loans, which would allow you to put a very minimal down payment.  If you can't afford 5%, then take a pass for now.