need some creative financing help?

Question

Hello everyone,

I am a brand new investor and I have been in the real estate business for just about five months.  I am looking to buy my first few properties.  I have lived in southern California for the past six years, and before that I spent the last twenty years in Kansas City. I have been looking at turnkey properties for buy/hold in the KC area since I am very familiar with the areas and it is only what I can afford at this point.  I have a few issues. I need money for the down payments for the properties.  I have the money, but I wanted to ask for advice on what is the best way to attain it.  Here is my financial situation:

- I own my my house with no mortgage.  I paid cash for my $739,000 home and my dad helped me out by giving me $150,000 towards the home in an irrevocable trust for my 3 yr daughter.  The rest was my hard earned savings.  I have been trying to get a heloc, but know one will approve one with a irrevocable trust on the property.  Some banks say I can see if my dad will lift the trust and then I can get a heloc and then he can put the money back in the irrevocable trust.

- I have about $100,000 in a etf fund in the stock market that yields about 9% and I get a dividend every month which I then use for our property tax payment every year.  I was thinking I could cash it out and just pay the property taxes in whole next year and just use the rest of the money for my investment property.

- my wife and I both work and I am a new real estate agent and I work all day everyday and then I work at a restaurant five nights a week.  I am just trying to find the best way to make use of my finances so I can start investing.  Our income together - we do not produce a lot of savings yet - as my real estate career is new - and living in Cali is not cheap!

I would just like some advice.  I would ask my dad about lifting the trust but I was burned about 15 years ago when my grandmother gave me about $90,000 to buy a house which I did in Kansas City.  It was my very first house.  Well about 3 years later I had a "good" friend of mine talk me into buying some real estate in Miami, Fl.  It all sounded good, but long story short, he had no skin in the game, and I lost it all.  My dad has yet to look past that.  I have learned so much in five months just by reading, listening, talking, networking, that I am ready to take another leap of faith.  Any advice would be helpful.

Thank you for your time.

Scott Winnie

Nuhan Demirkan · Answer

Hello Scott,

I assume you lost the money initially because you did not know too much about real estate investing. So my first suggestion would be to learn how to be an effective landlord if that is the chosen plan. My second suggestion would be to market to existing landlords to see if they would be willing to sell you their rentals with the tenants in them. I would suggest you structure seller financing with Deed of Trust on the property as the collateral. I would only use my money to make improvements to the property so I can raise the rent. I purchased a number of properties from tired landlords with good tenants in them. The old landlords like receiving monthly income with reasonable interest without the hassles of tenants and it costs me little out of pocket money.

Gordon Cuffe · Answer

When you have identified a house ,you can do a cash out refi with a private lender/portfolio lender. These types of lenders will not be as strict as conventional lenders when it comes to vesting of the house. You will not get the super low rates of conventional lenders but you will get the money.

You can then buy houses at a discount for cash, do some remodeling. get it appraised at the higher value then do a cash out refi with a conventional loan to get your cash back. You can then do it all over again.

Gregory Emmer · Answer

Hi @Scott Winnie...living in Miami, I'll say don't let the bad experiences of the past sour your desire to invest here again...tell your Dad that too!  The market is great here, and appreciating as each day goes by...that said, I agree with what other posts have said and you should consider a JV (Joint Venture), or consider taking our an equity line of credit with a private lender/hard money lender.  Sure, rates may be higher than what you'd get from a traditional bank, but you'd close quickly, avoid the red tape of a bank, and they won't care about your daughter's trust.  In fact, you could use the funds you get from the loan to pay off your dad and just have the trust removed entirely. That way, this won't prevent you from collateralizing this property with a traditional bank in the future (i.e. having them refinance you out of your private loan, which may/may not balloon).  I think the key is you have to look outside the box, knowing that working with any traditional service probably won't be a match.  Partnering with someone or hard money would seem to be the best bet.  And you have a very crucial asset already at your disposal-your free and clear home.

Brian Gibbons · Answer

I would be a private lender, own notes not rentals.

Lend to rehabbers, 80% total LTV.

10% rate of return to you in 3 months

Use a self directed IRA

see video

Disclosure: I have no affiliation with trustetc.com

@Brian Eastman

@Dmitriy Fomichenko

Gordon Cuffe · Answer

@Scott WinnieIt would work if your just buying a turnkey house. You could use a lower amount of cash as the 20% down payment to buy the house with a conventional loan.

I just wanted to give you an idea on buying a house for a discount so that you have equity and cash flow at the time you close escrow.

I like the Kansas city market also because a person can buy a house and use the rents to pay off a mortgage in ten years. You cant do that in CA.

Curt Davis · Answer

Here is one option:

You get a money partner who will front you the down payment.  That person will have to put the funds into your bank account and it will have to season for the next 60 days or the next 2 monthly statements that show the money in your account.

There has to be a lit of trust in this type of deal between you and the money partner.

Once seasoned you can then purchase the home by yourself and then once closed you can quit claim the home into an LLC that you and the money partner have created.  You will surely have to work out some type of arrangement on how the money partner will recoup their down payment funds.

Good luck

Mary B. · Answer

Here is a great example of creative financing from a fellow BPer. Your situation may vary but its quite motivational.

http://www.biggerpockets.com/forums/223/topics/225...

Kudos,

Mary

Scott Winnie · Answer

Mike - I just need to suck it up and talk to my dad about lifting the trust and letting me get to my money! I will have this figured out very soon and I will be contacting you to buy some Kc properties sooner than later!!

Mike D'Arrigo · Answer

@Scott Winnie Is there a reason that it has to be an irrevocable living trust? A bank will lend if it's in a revocable living trust. You might want to check that out.

need some creative financing help?

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