What cash can I accept and invest?

Question

I have a signed purchase agreement for a two unit property (to close on or before 06/10/16). Due to a miscommunication between my loan officer and I, and me not doing my homework properly, I'm going to come up $12k-$15k at closing. There's little if any instant equity, but it cashflows really well, so I'm reluctant to walk away.

Assuming I can find someone willing to make up the difference, what forms could that investment take in order to be acceptable as part of the down payment for a conventional investment loan?

Obviously a "gift isn't an option, so would I have to enter into a partnership or LLC with the investor?

Andy W. · Answer

I'm also investigating what it means to bring in an investment partner. Wondering if there's a way to structure it so that the partner receives an agreed upon ROI for a short-term investment, but isn't a co-signer on the loan. Not sure how an "investment" from a third party really differs from taking a cash withdrawal on a credit card from the bank's perspective though.

Marc Caraballo · Answer

@Andy W. It may be tough to work something out in this scenario, keeping your same lending.  I assume they're lending 75% LTV, and not 75% appraised value, so even if the property appraises high, you'll still need the same amount out of pocket.  A documented "gift" may actually be a solution, but you definitely can't just magically have 15k show up in your account.  There are other lenders that don't care where this money comes from, just that it shows up - and a lot of these lenders want you to be in an LLC on rentals.

PM me if you want the name a lender who's got a non-traditional program on rentals; even if just for future reference.  Smaller, local banks could also be an option as well.

Andy W. · Answer

@Marc Caraballo yes, I'm working with a 75% non-occupied loan from a traditional financial institution. I mistakenly thought I could get an 80% loan, and the extra 5% + 6 months reserves are what I'm trying to cover.

Andy W. · Answer

@Jaysen Medhurst I asked a wholesale question about the same property in the wholesale forum as they're two different questions.

Marc Caraballo · Answer

@Andy W. When you say you're using conventional investment load, do you mean it's a non-occupied loan from a traditional financial institution?  If so, I'm not sure that entering into a partnership or LLC is a solution, as that would change the terms of the money you're trying to borrow.

There are many options available for borrowing money, and maybe switching gears could be an option for you.  I know my hard money lender has long term portfolio programs where they'll lend 75% of appraised value.  So if you've purchased at the right price, that could minimize your out of pocket.  Additionally, if you can find a lender with a portfolio loan (loans that they don't plan to sell to the wholesale market), they'll be much more likely to lend to LLC's and the like.

Dig through the BP forums on funding, and I bet something will surface.  Good luck.

Jaysen Medhurst · Answer

Andy, is this wholesale deal?