I would like to purchase a second SFR for a rental and need private money lenders. I used equity in my home to purchase my first rental property in February. I have managed to rent it with a $50 monthly cashflow, but only because I put 20% down. I live in CA where real estate and rents are not cheap.
Do lenders that call themselves Angels lend at lower %'s rates - 6% ? And would they accept 65% of the monthly rental amount as an interest only payment with their investment secured by the property? I read Lou Castillo’s article on using people’s self-directed IRA’s to finance the purchase…would a 6% return on their money be attractive enough for the lender?
Trvlngrl
I would say no way on this one. An investor can put their money into a high yield money market account and earn 5.05% with no risk. If they have a savvy financial planner they could earn much higher than that on their investments. Even some CD’s nowadays are offering higher than 6%. I would guess that you would be looking at 10%+ if you want a true angel investor to lend you money. Now if you are borrowing from a family member they may take 6% just because you are related to them.
You also mentioned that you had another property that earns you $50 a month and you put 20% down?? That sounds like a terrible investment. You could make $50 a month by laying off starbucks two days a week. If that property has any type of repair or goes empty for a month or two it could wipe out years of rental income. Not to mention that values in Cali are dropping like a stone. You may want to sit down with a sound financial planner and get some advice because right now it sounds like you may be on the wrong track.
The first rental house is a minimum of 10 years investment - when my grandson is ready to go to college I will either sell it or pull out equity. I bought the house $30K below the market area and got the bank on this REO to pay for all the repairs. I currently have a renter who has asked to buy the house…maybe I’ll consider that in 10 years. The last time this renter moved was 11 years ago, so I’m hoping for the same in this house.
On the Angel Invester - would $900 a month interest only be enough on a $150k purchase with the Angel Invester listed as the mortgagee? I can rent in the area targeting for $1250- $1350. That would leave enough for taxes and water/sewer/garbage bill with about $100 monthly cashflow.
If I needed more than one Angel Invester - say 3 at $50k each; would $300 monthly interest each be enough on a $50k each investment?
Thanks for all and any advice.
Hi Trvlngrl,
The way you’d figure out whether $900/mo on $150k loan would be enough is…
The investor making the loan is looking for a return on their investment.
So, how good a return are you offering? This is how you calculate it:
Monthly interest payment times 12 (to come up with annual cash flow to the investor).
Annual cash flow divided by cash invested equals annual return on investment.
For example, with a monthly payment of $900 on a $150k loan,
$900 x 12 = $10,800 (annual cash flow)
$10,800 / $150,000 = 7.2%
So, you would be offering a 7.2% return on the investor’s investment. Whether they’d accept that or not is dependant on whether they feel their money is in a secure vehicle (making them a first mortgage holder would be a step in the right direction) and whether they feel they’re being compensated sufficiently. This will be an individual decision - I’ve met people that were happy with 6.5% interest. I’ve met more people who are looking for 10+% like Chris mentioned. Either way, it’ll be up to you to sell both the deal and yourself as borrower to potential investors.
If you’re willing to get out there and start talking to people, networking and getting the word out about what you’re looking for and offering, I’d be surprised if you didn’t come across someone who’d be interested in working with you.
I’ve had people lend me money just to feel like they’re actively involved in real estate. They’re too afraid to do it on their own, so they live vicariously through me…while making a return on their money.
Hope that helps…have a great weekend!
Stacy