Model help for "unique" situation

[Jeff Wilkerson]

Hi BP! First post and looking forward to more. Anyway, my Uncle is retiring and basically offered me a chance to partner up with him in an effort to make some money/create equity to buy a personal home in the Bay Area. The catch is that I would have to do the legwork. Once you understand the deal, you'll get it. Deal as it stands right this second: - My uncle will front most of the down payment on the investment property. - I have to contribute 5-15% of the DP - per his "demands," I need to create a model that shows a refi in X years where his money can be pulled out and my wife and I assume the investment in its entirety. The model also has to show our new CF, CoC, etc. after the refi. Where do I even start? Thanks!

[Nick James]

Hey @Jeff Wilkerson,

Welcome to BP and that is pretty awesome of your uncle to do! Based on your post, it sounds like you are looking for a value add property. Something you can buy cheaper than market, rehab it, and refinance. It's called the BRRRR strategy. I am kind of in the same boat as you in terms of trying to best figure to do this in the Bay Area but here is what I know so far. First off appreciation is never guaranteed, even here in the Bay. We are in a hot market now but things could turn and the more years you wait to refinance, the higher chance this hot market could start to cool off. So you will want to try and pull your money out as soon as possible. That being said, I suggest you figure out which areas of the bay you want to invest in.

Look for areas that are seeing some growth. I like to see what new businesses are coming to the neighborhood, population increase, rent increases over time. If you want to get data on a particular city, you can use https://fred.stlouisfed.org/, http://www.city-data.com/, or reach out to investors here on BP.

There are some great articles here on BP for understanding the basics of deal analysis like https://www.biggerpockets.com/renewsblog/2010/06/3.... You mentioned you need to show your uncle a model, BP has some great calculators for that like https://www.biggerpockets.com/buy-and-hold-calcula.... Go play with it and you will see it gives you a break down of COC and debt pay down. I'm sure others will have more to say. Good luck and hope that helps!

[Nick James]

Hey @Jeff Wilkerson,

Welcome to BP and that is pretty awesome of your uncle to do! Based on your post, it sounds like you are looking for a value add property. Something you can buy cheaper than market, rehab it, and refinance. It's called the BRRRR strategy. I am kind of in the same boat as you in terms of trying to best figure to do this in the Bay Area but here is what I know so far. First off appreciation is never guaranteed, even here in the Bay. We are in a hot market now but things could turn and the more years you wait to refinance, the higher chance this hot market could start to cool off. So you will want to try and pull your money out as soon as possible. That being said, I suggest you figure out which areas of the bay you want to invest in.

Look for areas that are seeing some growth. I like to see what new businesses are coming to the neighborhood, population increase, rent increases over time. If you want to get data on a particular city, you can use https://fred.stlouisfed.org/, http://www.city-data.com/, or reach out to investors here on BP.

There are some great articles here on BP for understanding the basics of deal analysis like https://www.biggerpockets.com/renewsblog/2010/06/3.... You mentioned you need to show your uncle a model, BP has some great calculators for that like https://www.biggerpockets.com/buy-and-hold-calcula.... Go play with it and you will see it gives you a break down of COC and debt pay down. I'm sure others will have more to say. Good luck and hope that helps!

[Jeff Wilkerson]

Thanks for the info!!

[Brent Coombs]

@Jeff Wilkerson, I had to do a double-take when reading your post. If you're LIVING in your "personal home" investment, then an FHA-approved Loan will have you not even needing your uncle's loan, providing your income qualifies you.

And if your income DOESN'T qualify you, then how will you prove to your uncle that it WILL, down the track? And how does CoC factor in, seeing as you'll STILL need to live somewhere that by definition, does NOT generate CoC?

Maybe you'll have to do it the other way around? ie. YOU lend your uncle up to 15% of a property that HE buys, (with your help in finding, if THAT'S your skill), and YOU pull out interest/profit on YOUR terms down the track?

And just to remind you, because your uncle's "gift" is actually a loan, it would have to be declared as borrowed. Don't even THINK about hiding your funding source/obligation from your Lender! Welcome to BP. All the best...