Refinancing low income properties

[Brandon Becsi]

We purchase low income properties for between 10-35k and use them as section 8 rentals between $700-$850 per month. I know that banks dont like doing traditional Mortgages on properties under 60k ish but what about refinancing or heloc? Basically we are buying these houses cash, want to do 6-8months of seasoning then pull our cash back out to reinvest in other cash-flowing properties. What is the best way to do this on homes with arv"s between 30-50k? Thx!

[Joe Villeneuve]

Easy solution.  Here is what we do.  It takes this "challenge"  (notice the word problem is not used here ;-), and turns it into a better solution than refinancing.  We originally set this up to marry my Michigan cash flow market with the California flip market.  They flip and bring their profits here as cash buys for cash flow.  This is a modification of our Turn Key model.  Here are the "challenges" for each of the scenarios.

Scenario #1:  Out of State Buyer

Challenge A:  Being out of state, and having to deal with a problem tenant or property
Challenge B:  Being out state, and not knowing the market
Challenge C:  Being out of state and not seeing the property (could be sold a "dog")

Scenario #2: Small ARV property values...can't finance (buy or refi)

Challenge A: 75% of ARV too small for a REFI loan
Challenge B:  Cash used to buy gets burried in property until Cash Flow pays it back.  This can take many years, and while this is in place, the money is dead.
Challenge C: Can't use HML to buy/Rehab ...(see Challenge A and B)

Scenario #3: There are many New REI investors that can't get started because of...

Challenge A: No knowledge, experience, or Power Team in place
Challenge B: No time (working at J.O.B. full time)
Challenge C: Very little cash to invest with (maybe $5 - 25k)

Our solution, is to set up our LLC's that own the properties (one for each) with openings for partners. These openings are filled by out of state or limited newbie partners. We can break these partnerships into smaller, but equal, segments. Any new partner can take multiple (all if they want in the case of an OSB) partnerships. This means we have eliminated any Wholesaling from us, and our buyers don't need to use Wholesalers with unknowns. This has allowed us to tap into all three of the above scenarios because of these solutions.

Scenario #1:  Out of State Buyer

Solution A:  We stay on board as the managing partner
Solution B: By staying on as Managing Partner, the OSB is confident in the project.  WE know the markets.
Solution C:  By staying on as Managing Partner, we have a vested interest in the deal...and would be the ones dealing with any problems, at a reduced return for us.  We're not going to do this if this is a "dog".

Scenario #2: Small ARV property values...can't finance (buy or refi)

Solution A:  No loan, no 75% limit, no 6 month seasoning, maximum cash flow splits
Solution B: Cash we put in is returned to us, either all at once or in pieces.
Solution C: No loan to pay back, no credit partner, no cost of money.

Scenario #3: There are many New REI investors that can't get started because of...

Solution A: No need for knowledge, experience, or Power Team...we are those things
Solution B: No physical involvement (meaning no time involved) for the new partners
Challenge C: Partnerships splits are set up between $5 - 25k, depending on the particular property.

Needless to say, this has been very popular with many REI in the above scenario groups. Like I said, this is how we solved the problem of low ARV/REFI...and it ended up solving even more problems than that.