Using OPM for Down Payment

[Matt Burr]

I am looking at a couple of deals where I can get a commercial loan on the propertise. However I want to barrow the down payment from friends that are interested in investing.

I am pretty sure this is very possible but need a few simply answers to get out of the gate:

1) What kind of note would you offer to the investor?

2) What if anything guaranties the note?

3) I assume banks will likely require that they hold the first position is this true?

Any other thoughts comments or experience would be appreciated?

Thanks

Matt

[Daniel Dietz]

@Matt Burr, we have done a couple that are similar to this now. One caveat is that we ALSO had properties without a partner bringing on a second for the down payment, so a 'track record' if you will. 

Our commercial lender typically requires 20% down and a DSCR of 1.1 or better. They will allow a partner or seller financed second position IF the OVERALL payment is STILL at that 1.1 DSCR or better.

It is VERY hard to find those deals in our market. So what we have done is brought on a Private Money PARTNER with the down payment of 20%, we provide everything else; finding, rehab management if needed, and ongoing PM and overall management of the assets.

The Partners get NO interest, but instead we split all cash flow and equity growth 50-50. Yes, we give up 50% of a deal, but  we also MAKE 50% of a deal with none of our own cash just by using our management skills.

As the saying goes, 50% of a good deal is better than 100% of no deal :-)