I don't have money! Although I have a name....

Creative Real Estate Financing
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I don't have money! Although I have a name....

Chris Quickfall
Prince George, British Columbia · Member since 2017 · 2 posts · 0 votes

I have recently entered the real estate industry, I have so many questions! I would like to start out by saying I have very little capital. Although my capital is growing, my position puts me aimed towards the creative side of investing. So, please tell me what you guys think about this deal strategy, or if any of you have worked something similar. Please tell me upfront if it won't work, and why. Also, give any advice on how you guys would perform this deal!

I have noticed that one of the most difficult problems with investing is acquiring capital. This seems to be a problem for both large, small and just starting investors like myself. It is no secret that after you grow to a certain size it becomes difficult to get money the traditional way. Investors then have to become creative to get more deals performing rent to own, seller financing and cash deals etc. So on this principle here is my strategy:

The investment I'm looking for is a buy and hold, multifamily investment 50%/50% partnership with an investor who is looking for creative methods. I would supply the financing using my name going to a bank and the joint venturing investor would cover all or most of the downpayment. 100% of the profit would go towards the partnering investor until I paid back my share of the downpayment ( 50% of the total amount) using my share of the monthly profit. Thus, in the long run, we would both be equal partners in the investment.

It would be a win-win. My partner would gain by getting into an investment that the banks are unwilling to let him/her leverage (since his/her portfolio is already highly leveraged) and I would gain by acquiring an investment that I don't have the downpayment for.

Thanks for your time!

Chris Quickfall,

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  • Dan Bryskin
    Investor · Minneapolis, MN · Member since 2015 · 252 posts · 263 votes
    9y

    @Chris Quickfall

    So, he puts in all cash and you get a mortgage? Few thoughts: Say it is a 100k deal, he puts in 20k and you are liable for 80k? You do all the work? Deal is 50/50? I would not ... In some period of time you will pay 50% of the down payment back, but still be liable for 100% of the mortgage?

    1. Position a deal with 60% to you and 40% to him

    2. Cover your self with the good operational agreement. Address things like what happens then unit is empty and needs a major rehab. Who pays for it? 

    3. I'd pay investor 50% of his down payment first,  take profit 60 / 40% with investor getting his other 50% back on the back end, because he is first to get reimbursed for first 50%. 

    Here is how I think about it. If i found a deal  and walked investor through it - that's worth 10%

    Management is worth at least 10% as well. Good long term credit is worth at least as much as 20% cash. Don't sell your self short. Good luck.

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  • Jan H.
    Investor · Saint Johns, FL · Member since 2015 · 141 posts · 100 votes
    9y

    While it's exciting to get into RE investing with a partner, you really have to get the emotions out of it and look at it objectively. I think this deal does not sound that great, here is why:

    -It sounds like you would not be able to buy the property without a 'cash-partner", and neither could he/she without you. You bring 50% of the deal here and he/she does the same. I would even venture to say that bringing financing weights more unless the partner is a very experienced, hands-on REI.

    -You bring the financing = your name is on it = YOUR RISK! You have to consider all possible scenarios including bad things, rents don't get paid, etc. What is your exit strategy? Do you have reserves? Remember, if anything goes south, your credit is screwed, not your partner's...

    -Why would you agree to give up all of your profits to pay back the down payment? Is your partner giving you part of the profit for bringing the financing?

    I would NOT go in this deal, I think it's only beneficial for your prospective partner...

    I'd like to see what others out there think of this...

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  • David Friedman
    Property Manager · San Bernardino, CA · Member since 2014 · 473 posts · 238 votes
    9y

    Cash is king, not financing. Anybody can get Hard Money with a 25% down payment. Most Hard Money companies won't lend at 100% LTV to someone that hasn't proven themselves with a couple of deals.

    My suggestion is to find someone with money who is not actively involved in the real estate industry, but wants to invest. You can do all of the hard work and earn sweat equity. If you find a partner who understands/is involved in real estate and you bring them a deal, they're just going to want you to wholesale it to them.

    That being said.. money is easy to find, financing is easier to find. Find a good deal and both the money and financing will come to you.

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