Creative Financing Help! Can 60K buy 5 Shortsales? How about 10?

Question

Hi, thanks for checking out my post.

My husband and I, along with a small investment team are ready to scoop up some investment properties.

I’m a beginning investment real estate agent; he is a general contractor (property management pro).

We are ready for deals.

We have raised $60,000 ready to invest.   We are interested in discounted properties (short sales, and negotiating with lenders/distressed seller’s in pre for-closure, via les pendens filings).  We are interested in buying primarily duplexes around the 200K mark, and single family in the 75-100K arena.  Buy and hold investment strategy.

My Question:  How do we stretch our investment dollars the furthest?  I.e. it will be easy for us to acquire 1 property via short sale with 60K, but how do we acquire, 5? Or dare I say 10 investment properties with only 60K?  
Looking for Creative Financing structures and appropriate legal structures here and not any Negative Nancy comments.

After initial discussions, it sounds like it will be best to form a business and acquire a blanket loan.  But wanting to hear what you creative financing experts think on the matter.

Thank you in advance for your insight and help. 
Catherine

Jon Holdman · Answer

If you can find a hard money or private money lender and some very good deals, you might pull off the "hard money then refi" strategy.  You buy with hard or private money.  Using a lender that will let you borrow some rehab money, too.  You try to find deals that are going to have some serious equity in them, once fixed up.  That means your purchase, rehab, money and other costs need to be down below 75% of the realistic value after its all fixed up.  Buy, fix, then get it rented.  Then do  a rate-and-term refi to pay off your lender.  Don't take any cash out.  Unless you truly find screaming deals, you're not going to have enough equity to get cash in any case.  Lenders may go up to 75% LTV for the first four mortgaged properties, 70% for 6-10.  Rates are so low right now you really want to lock in those low rate  30 year fixed rates if possible.

You might want to consider other kinds of deals, too.  Subject to or other types of owner financing may let you acquire properties with less out-of-pocket cash than other methods.

Dion DePaoli · Answer

There is no magic math.  You are asking to purchase between $500k to $2.0 million worth of real estate with $60k.  I hope that was a little shocking after you read it too.

I think it is awesome you have a high unit target but it may not be practical at the dollar figures you are talking about.  It is going to be based on the debt provider relationship you can get.  A bank, hard money lender or even another private investor willing to be more of a debt provider can offer potential solutions.

The buy and hold strategy  is good but it is not clear you have thought about how to recapitalize your venture.  Once you put your money into the asset via down payment, closing costs, repairs or whatever how will you cash it back out to buy your next asset?

An answer of refinance there presupposes you are purchasing properties with equity in them and you have lenders who will allow you to cash out that equity.  Assume that no lender is going to let you remove all of your skin in the game, lets assume 90% would be the max loan.  Remember as well, that different lenders will have different terms regarding ownership time seasoning before they will allow you to realize untapped equity as this is the same as allowing you to remove your skin from the game.

A local bank might be willing to setup a relationship with you to workout rehab loans where they finance the purchase and repair costs.  That same relationship may also be inclined to work with you and allow you to cross collateralize some of your properties using the property equity to allocate new debt.  Most of the time you need a little bit of a history to garner this type of relationship with a bank but perhaps your general contractor has a bank relationship he can leverage off of.  (this would bee the "blanket" loan you refereed to)

Obviously a solution to the re-capital is just raise new money.  Another thought might be to look for properties that you can buy and sell.

Again you have some dollars to go make deals, it only takes one to start.  It may make sense to sit down with your partners/investors and think through the plan.  Start small and manageable, you don't know what you don't know yet.  It takes money to own real property so you need to setup a budget for each of your projects whether it is buy/hold or buy/sell.  Include all costs including your debt relationship and a contingency for things you didn't plan for.

As I opened with there is no magic math that will whisk you along the path of success.  Assuming you will have around a 10% equity stake in each property for your $2.0 Million you still need to make or raise another $140k plus, chase your dreams but keep them rooted in reality.

Account Closed · Answer

If you manage to make that work.  Sign me up.

Nathan Emmert · Answer

Catherine, the biggest issue you have is who you're planning to buy from.  When the seller is a bank, your creative financing options essentially go out the window.  Most creative financing is done through owner financing.  Buying from a bank is going to involve traditional financing which will mean 20 - 25% down.

To maximize your $60k, you'll need to buy under performing properties.  Buy a place for $100k and put $25k down.  Through improvements in the structure, decreases in vacancies, and improved rents maybe you can get the value up to $160k.  Now 75% LTV is $120 meaning you should be able to pull your $25k back out plus an additional $20k.  You have a property and grew your $60k to $80k.

Of course there are several issues.  Finding these properties isn't easy.  Most banks will want between 6 months and 2 years of seasoning on the rent improvements before giving a new appraisal.  You're limited on the number of mortgages you can take out.  And your rents may not actually support a mortgage that high depending on your risk tolerance (I like to stay below 3:1).

But if you can pull it off, that's a way to recycle your investment into several properties.  I've taken about $40k and bought two multifamily houses.  I'm hoping to be able to pull out $70 - 80k in June.  We'll see what the big banks think!

Andy Collins · Answer

one of the problems you are going to find is the lender(s) will want you to have reserves, you can't take your cash position to $0,,but can it get in in 2 or 3 single families (with reserves left), yes if you  find the right deals and go hard money then conventional financing

Creative Financing Help! Can 60K buy 5 Shortsales? How about 10?

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