Newbie Needing Financing Advice

[Matt Hudson]

Hello BP! My wife and I are tired of talking about real estate investing and are ready to start. Unfortunately, we can't figure out the financial hurdle of our current situation and are seeking guidance. So here's the sitch...

We live in our forever home and operate an STRP (Airbnb) on the property. My wife has a full time job and I just became self employed just over a year ago.

With my new self employed status I was told I could not be approved for any loan until I have filed 2 W2's. My wife's income would be the only usable income. With our debt to income ratio this prevents us from getting a traditional loan to purchase an investment.

This would also prevent us taking equity out of our current home. We already did a cash out refinance and equity line to build our DADU which houses the STRP.

We have $25-30k cash to invest. We're wanting to buy and hold. Potentially a BRRR for a property at the $150k or less price point.

I've looked into traditional loans and that doesn't seem feasible. Have some hard money options at 12% APR for 6 months and 2 points (seems terrifying). Trying to avoid partnerships with friends and family for several reasons.

We'd like to get the financing options hammered out before really digging in and looking for deals. The financing will have influence on what kind of deal is feasible.

Any suggestions?

Any suggestions?

[Lori Greene]

There are so many options for you. I teach creative financing. Here are some ideas.

1. Let's start with Seller Financing since that's the topic at hand. You asked, "how do I find these people" who are willing to do Seller Financing? Answer: You don't find Seller's who will do seller financing, you simply find motivated sellers and offer them a seller financing deal.

Here's a BiggerPockets post that explains a strategy called Multiple Choice Offers where you give a motivated seller several offers to choose from which involve seller financing: https://www.biggerpockets.com/forums/61/topics/635....

2. On the subject of partnering, there's another strategy I teach about how to find Private Money Lenders (not to be confused with hard money). It's very simple. Everyone you talk to, even strangers, you start the conversation by asking them what they do for a living or how they're job is going. Then that opens the door for you to talk about what you're doing (your investing). Then you throw in, "I love partnering with other people, so if you ever know anyone who wants to make an easy 10% return on their money, let me know, I'll hook them up (or you can offer to split the profits with them). They put up the money, I do all the work and they get their return a few months later." You'll be surprise at how many people will say, "I'm interested" or "I know someone."

3. As far as hard money, hey, you gotta start somewhere. It's not as bad as you think. If you're careful about who you hire to do the work and it gets done in 4 to 6 months, it's not really that much because that 12% is annual. For easy math, let's say you borrowed $100k, 12% would be about $1000/mo. If you got the rehab done and the house sold in 6 months that $6000 interest. And if you only use hard money for your first several deals, you might then have enough profit to fully fund your next rehab.

4. Wholesaling. I'm surprised no one has brought this one up yet. It's the easiest way to use other people's money and it's my specialty. Once you've got some deals under contract, how do you move them quickly? It's easy. There is no shortage of investors, cash buyers and flippers looking for good deals.

Why would they pay you for wholesale deals when they can get their own? Because, in this business, time is money! And you've just saved them a lot of time by finding, analyzing, offering and closing these deals.

Once you have a deal to wholesale, you have to move quickly.

1st, create a PDF that is basically an ad for the property. Think like a Cash Buyer in your presentation. What kind of deal and presentation would make you want to buy it if you were going to fix and flip it?

Show them the detailed numbers with a breakdown of the After Repair Value minus all of the projected costs (including your wholesaling fee) and the final profit. Your wholesaling fee should typically be less than 20% of the total profit so that the Cash Buyer can have at least 80% of the profit. Cash Buyer's love deals like this!

List what repairs or upgrades are needed. Show them photos of the property inside and out.

Wow them with all of the homework you've handed over to them on a silver platter. THIS AD IS WHAT WILL SELL THE DEAL FOR YOU.

Here are the elements of a great Wholesale Deal Presentation:

Below are the numbers in a Wholesale Deal Presentation I created for another fantastic deal that came to me from an I Buy Houses ad I put out. This house was one of the dirtiest houses I've seen and the smell was horrifying. It would send most buyers running for the hills.

But a smart buyer knows that this kind of house is an investor's dream because these issues are all on the surface and easy to fix. The house needed about $25,000 in remodeling, but the gap between the As-Is Value and the After Repair Value would leave plenty of room for a great profit.

Our low end comps for houses in this kind of condition showed an As-Is Value of about $90,000. Using the As-Is value, these sellers had almost no equity and were seriously delinquent on their mortgage coming dangerously close to foreclosure. SHORTSALE!

We didn't give this seller multiple offers to choose from because we felt the best option was a short sale and the purchase price would be determined by the bank anyway.

Because of our in-depth comps analysis of other nearby properties in poor condition, we were able to prove to the bank a $90,000 As-Is Value. The sellers owed $87,000. We showed the bank that any buyer would be upside down in the property after paying to get the house into livable condition.

With our detailed list of repairs and remodeling costs we were able to convince the bank to let us buy the property for about $65,000.

Our comps analysis of similar nearby properties in top condition showed an After Repair Value of $131,500.

Short Sales and Bank Owned Properties (also known as REO's) can also be wholesaled once under contract but there are special tricks to these strategies because of bank involvement. Rentals can even be wholesaled out because you can show the Cash Buyer monthly cash flow in addition to an end profit at some point.

Below are the elements of a great Wholesale Presentation using this particular deal for the Cost and Profit Breakdown.

Example Title to Wow Cash Buyers:

"Deeply Discounted Fixer-Upper - INVESTORS DREAM!!!"

Property Address

Example Cost & Profit Breakdown:

$131,500 After Repair Value

(65,320) Purchase Price

(24,780) Repairs & Upgrading

(5,240) Closing Costs

(4,500) Financing Interest

(1,200) Taxes & Insurance

(5,900) Wholesaling Fee

____________________________

= $24,560 Cash Buyer's PROFIT

Actual Sold Comparables

Estimated Repair Details

Call to Action:

We have a huge Cash Buyer’s list. This one will go fast. Don’t delay!!!

Your Contact Info

Next, blast your presentation EVERYWHERE! Hopefully, you've already started building a Cash Buyer list. Investor networking sites like Bigger Pockets and Connected Investors are perfect places to find Cash Buyers.

Email your presentation to your Cash Buyer's list. Also copy and paste all of the info from your presentation into online ads and posts on investor networking sites, Facebook Investor Groups, Linked-In Investor Groups, CraigsList, local online classifieds, etc.

Then take your PDF in paper form to local Investor Club Meetings and any real estate auctions you can find. This is where Cash Buyers hang out and they are hungry for deals!

FYI, there are other ways to wholesale a contract besides just assigning the contract. You can do double closes (even without using your own money) or you can use disposable LLC's (where you sell your LLC who owns the contract instead of selling the contract). If you have questions about these strategies, let me know.