Brainstorming ways to finance second investment property

[Jacob Henderson]

I am looking to buy my second duplex and am searching for ideas on how to make the financing work. First of all, I am currently house hacking my first duplex and living for free. I bought this about 8 months ago using a 3.5% down FHA loan so I am certain that my DTI ratio is not good enough to get another traditional loan.

I have spoken to family members and have one that is willing to be a private money partner on the deal. My goal is to create a win-win situation and be able to buy the property and help my family member make money too. I plan to move into this property after closing and renting out the the other unit that I am currently living in (from my first duplex).

These are several different ideas I have brainstormed:

A) My investor does a cash-out refinance on their primary residence and then loan me the cash for a higher interest rate than their refi.

B) They get a HELOC on their primary residence and then loan me the money and I pay them a higher interest rate.

C) They are also willing to buy the property in their name and then offer me a lease with an option to buy or rent to own situation.

More details about the deal itself:

They are asking $120k and the only initial repair I would do is paint the exterior to protect it from the elements. The HVAC, plumbing, and electrical has been updated five years ago and the interior of the property is in great condition. I plan to offer 100k. Each side of the duplex rents for $650.

I do want to buy and hold this property as a rental property but also need help with suggestions on an exit strategy to pay off the loan from my family member.

Some ideas I had: 

1) If they purchase the property and set up a rent to own situation with me. I pay them rent plus manage the property for the other unit. After a year or two I would then be in a better position to get a bank loan and buy it from them. 

2) If they loan me cash from their refinance/heloc, I make interest only payments to them for one/two years and then get a traditional loan.

So to sum up this post, I am trying to gain insight on how to make this deal as smooth as possible for my investor and was hoping for some feedback on different ideas or strategies that have been successful for you.

Thank You!