All Forum Posts by: Matt Rothwell

 I'm not sure crowdfunding is the right word for it, but I guess the principle is similar.  "Crowdfunding" conjures up images in my head of jorts, beards, nano-breweries and fixed gear bikes--not the approach I'm going for.  I was more thinking that by piecing together 2-3 investors worth of funds, I could get enough to buy a cashflowing property or two.

I guess what I'm struggling with is: I know whats in it for me, but how do I structure the deal so that the investors see enough reward that its worth it for them?

If I gave everyone a first position on a lien, I'm thinking that certain government agencies might not be to happy with me.  The properties I'm interested in are $200,000-$300,000, so I'd need more than one investor.  Otherwise I'd just do a bank loan, I could easily do better than 7% for 50k with a first position lien.  

I'm finally almost done with the updates that I wanted to do on the duplex I bought last fall, which means that it's about time for me to start shopping for new deals. I'd prefer not to move and take another FHA loan; rather, I'd like to try giving private money a try. Keep in mind that I'm not interested in flipping. I'd really like to do buy and holds instead.

I seem to have stumbled upon a pretty great pool of contacts with a decent amount of cash to invest if I get my elevator pitch down right. A lot of the write-ups I’ve read on biggerpockets and elsewhere focus on how people cleverly find deals, and how they cleverly coax large sums of money from various sources. What they're usually fuzzy about is what they did to turn that money into a property. In other words, I’m not worried about getting the money; I’m more concerned with what to do with it. Well, I’d buy a house or two or ten with it…but how do I structure the deal?

The most obvious way that I’ve thought of is the structure the investment as a note. I.e., they give me $50,000, I pay them back at ~7% apr, like a regular loan. The pros/cons are:

Pros:

-Simple. It’s a loan, I just make payments back, and it’s easy to explain.

Cons:

-Can’t combine that with bank financing because most banks don’t want another lien on the property and I don’t think I could get anyone to invest without me putting the property as collateral. This means that I need to get several people in together, and that’s never easy.

-I don’t think it’s the most profitable way to do it--I’d pay a bunch in interest to these guys

The second idea I had was to have them invest in my company (yet to be created). They would invest in "Matt Rothwell Holdings LLC", and then my LLC would buy the property(ies) and distribute funds according to how much they invested.

Pros:

-Seems more scalable, I could see this working better in the long run.

-Matt Rothwell Holdings LLC could potentially get bank financing to go along with investor funding.

Cons:

-Matt Rothwell Holdings LLC does not exist yet. I'm thinking there's a good amount of money required to set up that company and then more money to file taxes every year.

-Complicated

-I have no idea how to structure this.

-Not sure, but I’m pretty sure the SEC gets involved here.

So these are just a couple ideas that I’ve brainstormed, but I’d love to hear examples of how others have setup private money deals. What did you get out of the deal, and what did your investors get?

Well that's unfortunate.  

I’m looking at a few houses that are good values but I’m at least a couple years away savings-wise from being able to afford a down payment ($30-40k range) on them as an investment property. I could comfortably put down ~$5-10k down, but any more than that and I’d be digging too far into my cash cushion to be comfortable. Assuming I can find someone to hold a second position on a mortgage, is it common for banks (the bank would be holding the first position) to allow them for investment properties? Is it just on a case by case basis?

This is in Raleigh, NC if that makes any difference state by state

Hey @Ricky Stafford,

I bought a duplex in Raleigh.  It was tough, and if I had to do it again, I'm not 100% sure I'd go for it.  I basically lucked into this place, beat the seller down on the price and I still think I paid a bit too much.  It was also my first real estate purchase.  I've found that many of the duplexes in Raleigh are in the older neighborhoods since the Duplex as a home style has, well, gone out of style.  This means two things:

-The house is OLD (mine is a 1951 and its pretty new compared to some others I looked at)

-The neighborhood is nothing like it was when it was built.  

The age of the house is important, because even if its a well-maintained house, its going to have an older style floorplan.  My place is tiny--1440 square feet total, 720/side for a 2/1.  That basically limits me to singles and couples, not families.  I'm going to have to deal with the turnover, luckily I'm close to NC State and can count on a steady flow of students to live there.  The bathroom is small also, something that drives my girlfriend nuts.  

On my second point, allow me to explain.  Most of the Duplexes in Raleigh were originally built to house the working class in the post-war period of Raleigh.  Some neighborhoods have flourished, and some have not.  "ITB" is where a lot of the duplexes are located, though that means that the prices are either way way way inflated (because the land value is high enough that people will buy it for a tear-down), or its in SE Raleigh.  SE Raleigh will probably come around in 15 years, but do you think you're going to live in a crummy, tiny Duplex for 15 years?

A spot in Raleigh to find newer duplexes (though they're still a little rare) is on the edge of Raleigh and Cary, in the triangle formed by Wade Ave, 40, and Rt. 1/440.  Look at a map of Raleigh to see what I'm talking about.  There seems to be a relatively large amount of duplexes built in that area, though I'm not sure that you're going to capture the young professional working in RTP that you want to live in your house.  You're going to end up with class B-/C+ housing there.  

Since this is all hypothetical and we're investing with imaginary unlimited cash...I would think that looking towards the expensive markets would be the way to "win" this game, so I'd be looking at NYC or Southern California.  The reason I suggest this is that the upkeep for a 1500 sq ft 3/2 in the burbs is probably not going to change a whole lot whether you're in Raleigh or Southern California.  A roof is a roof, and electrical work is electrical work, and plumbing is plumbing.  Appliances cost what they cost, as well.  So with that in mind, I'd likely be able to keep my SoCal units in better shape than my Raleigh units with the higher rents that I'd be commanding.  

So while the numbers might look about the same or worse, I'm thinking that as long as I have a decent property manager, I'd have a more sustainable property, and that's truly the big idea when it comes to buy and hold investing.  

 Well that's been the plan since I got the house.  I just was wondering if there was another way I could get it done quicker.  After all, who wants to be paying an extra $200/month if you don't have to?

 Haha yea I guess I forgot to update my location when I moved.  Im in Raleigh now, near Brooks and Wade Ave.  is there anywhere that you know of where I can read about the zoning restrictions and how to alter them? The city gov. website isn't that helpful, maybe I'm looking in the wrong place. 

I currently am owner-occupying a duplex and renting the other side out. I bought it with a 3.5% down FHA loan. This property doesn't cashflow with me living in it, but it allows me to live very very cheaply. I like it so far, but I'm paying almost $200/month in PMI that I'd like to get rid of. Around here, duplexes appraise very poorly because most duplexes are in the 'hood. My duplex is an oddity though, its "ITB Raleigh" and in a gorgeous area surrounded by million dollar houses. If it were a SFR home, it would be worth approximately 125% of what I paid for it last August. So with that in mind, I'd like to try some innovative financing strategies to get rid of PMI and lower my total expenses.

Here's my plan.  I'd like to try getting the place appraised as two separate units (condo conversion?), then refinance the two properties with a portfolio loan.  That should bump the appraised value up high enough that my remaining balance is less than 80% of the appraised value.  

Is that legal/ethical?  Is the interest rate on a portfolio loan so high that its not worth it?  What kind of LTVs do portfolio loans allow?  Would I get eaten alive in taxes?