All Forum Posts by: James Nosack

@Hip Rodriguez Yes in essence this would be 100% financing. The theory is that if the funds drawn via personal loan have been seasoned in your bank account for 2+ months, then the lender may view the funds as your own. 

I absolutely would not go this route without clarifying and confirming with any particular lender. Also, yes - I do think that it could potentially be difficult to find lenders open to this. I am not interested in getting my hand caught in the cookie jar. Just thinking outside of the box, while remaining in-legal bounds!

@Tom S. To this point I have only confirmed that it is technically possible with the lender I work with. It is something I will consider moving forward. In order to use the (personal loan) funds they must season for 2+ months in an account, so it is something I would have to begin with the understanding I have to sit on it before finding a deal down the road.

As far as justifying this strategy - To me, this sort of financing would be an opportunity to walk into a place with rehab and equity potential at 0 money down. I would not consider this for any sort of deal that I was not adding value to because I would not consider banking on appreciation alone to increase my equity and offset how leveraged I would be.

I also would not use this personal loan strategy without setting aside a portion of the personal loan money to be used to cover payments on itself as a safety factor. Say I borrowed $30k in a personal loan over 84 months - set aside $5k and used $25k (after seasoning) for the down payment. Sort of like budgeting construction interest into your construction budget.

Assuming the property is well rented and turns a profit even after factors (Capex, vacancy, maintenance, ect) the tenants would be paying down both my personal loan & bank loan. If I added equity to the property from a rehab, on the tail end I walked into a deal that turns a profit, for zero down.

I currently am buying two properties with my own cash for down payments - both are being renovated. After running numbers on both of these, I believe my strategy would have worked well had I tried to implement it for these deals. One is a duplex I will convert to a fourplex, the other is a condo renovation that I purchased at a great price. Both will have great cashflow and will have enormous added equity. 

@Jaysen Medhurst I will be sure to post deal specifics of both, my current properties that I believe this would have worked for - and also any future properties that I implement this strategy on. (Assuming it is not shot down before I get to that point for unforeseen reasons).

@Jaysen Medhurst & @Tom S. -

Appreciate the feedback. We plan to BRRRR with most properties and flip if it makes sense in between. I here your point of being mindful to not put ourselves in a situation where we are over-leveraged - but here is our thinking, let me know your thoughts.

Where we felt this may be advantageous are deals that cash-flow enough where we are able to pay off both loans (business loan used as down payment & property loan), all expenses, and fund our emergency/safety buckets (Capex, vacancy, maintenance, ect.)

We are both young and are finding it difficult to argue with acquiring a property without money out of pocket in this way if the rental income can support both loans without applying too much stress to our bottom line.

From what we have seen, taking on BOTH a business loan for the down payment + a conventional mortgage or commercial loan would result in equal or lower (interest) payments then any hard money that we have come across. 

Thanks

My business partner and I have begun to seek out larger sums of capital to invest with. We have recently started looking at the possibility of (small) business loans to help fund our down-payments. We have been told this can technically work as long as the money is “seasoned” in our accounts. Is there a drawback to this?

A couple of the issues we have read about online is that a business loan will typically require operating experience of 1-3 years along with the ability to show a history of cashflow and means to cover payments.

Since we have only just started investing together, our LLC only owns one property and we have only a couple months of operating experience.

Are there alternative business loans that we may qualify for with less experience?

Am I able to bring my property that has cash-flowed for over a year now underneath our former LLC to help us with the operating experience and revenues we need to qualify?

Appreciate all feedback!

Investment Info:

Small multi-family (2-4 units) buy & hold investment in Tacoma.

Purchase price: $375,000

Late post, but still house hacking my first Duplex! (2) 3BD/1BA units.

What made you interested in investing in this type of deal?

I am drawn to the idea of replacing my income with passive rental income. In my opinion a cash-flowing property is an attractive way to hedge against slow appreciation/ lack of appreciation in home value. Purchasing multiple units allowed me to find a property as an owner occupant while also achieving strategy.

How did you find this deal and how did you negotiate it?

I went to a couple of events, met some people, and even checked out some properties. In the end it was someone that I met through Redfin. I was receiving email alerts for properties hitting the market and reached out about one. The agent did not actually specialize in multifamily but we connected anyway. A few weeks later he called me out of the blue because a friend of his was selling their remodeled duplex. It was a perfect fit, I purchased 2 weeks later off market.

How did you finance this deal?

FHA

How did you add value to the deal?

I built out some warm storage units in the basement and installed Lutron caseta systems with Ring doorbells and Nest thermostats. These changes generate extra cashflow (the extra storage rents for $50/ space), reduce my utility costs, and the Ring doorbell makes the tenants feel safer.

What was the outcome?

Still on-going, but it has been a very positive experience. When I move on to my next investment the property will generate more cashflow once a future tenant takes my place.

I will be looking to purchase my next property again in the next 2-4 months.

Lessons learned? Challenges?

I believe that I lucked out getting responsible tenants to share the home with. After reading the information I know now, the next time I screen tenants I will be much more thorough. I also will be adding language to my least agreements to better protect myself, property, and tenants.