Im a semi-experienced realestate investor in the Richmond VA area and I have a trusted section 8 tenant that is ready to sign a lease on a property that I am interested in purchasing but Im short on funds to put down on the property.
The details are: $149.5k asking price, 10-20% down, mortgage vs. fair market rent=$300/monthly cashflow. But I dont know how to come up with the down payment or how to pursuade private lenders to invest in my deal.
I figured I could ask a private lender for the down payment money and take out a mortgage on the home. Then, make small payments of maybe $150/monthly to them for 24 months and then pay them back the down payment after refinancing the mortgage.
With my calculations this would add up to $150x24months=$3600 plus the $15k (10% down payment) at the end of 24 months, totaling $18600. Which is a 124% ROI.
Im not sure if this sounds like a good deal because I have never negotiated these terms before please tell me if this soulds like a good deal and any advice how to secure this property would be greatly appreciated.
Thank you,
when you refinance, you are going to take a LOC on the home to pay the investor back, correct? what if it doesnt appraise for the higher amount? and if it does, wouldnt that higher payment eat your cashflow?
VA realestateinvestor,
I’m wondering how rent from a Section 8 tenant can pay the mortgage and expenses on a purchase price of $149,500?
Please share those numbers with us, I’m concerned that you’re going to go in the red every month. We can help you make a sound decision maybe.
Furnishedowner
First, thanks guys for the responses. The section 8 tenant will pay a rent totaling $1300 based on Housing Authorities rent rates. The mortgage on $149.5k after putting down %15 percent (assumed lowest down payment based on relationships with local banks and guaranteed lease from tenant) at a rate of 6% would be $978.90 (P&I, taxes, and insurance). $1300-978.90= $321.10 gross cash flow.
I would then make monthly payments of $150.00 for 2 years to the bank/investor that loans me the down payment money. Then at the end of 2 years I would prefer to refinance the property and pay off the bank/investor. Giving them $150x24= $3600+$22,425(initial down payment), totaling $26,025. That would give the bank/investor a 58% yearly ROI on their money and a 116% ROI in two year.
Now I’m not that extremely hungry for cash flow at this moment I am more so looking to build an empire of quality properties and tenants that will overtime create my wealth. I say that because for the first few years majority of my cash flow will be put onto the principle of the property thus paying it down quicker, thus increasing equity, and finally eventually netting most of my rental income and increasing my net worth.
The property will already have the equity in it to pay off the down payment because of the initial down payment not to mention the monthly added payments to principle and the money form taxes returned each year that will go into the principle as well.
Principle pay-down: $149,500
- 22,425 (15% down)
$127,075
- 3,000 ($150 monthly principle payments)
$123,475
- 2,000 (tax return to principle)
$121,475
Equity(without factoring rising value and mortgage payments): $149,500-$121,475=$28,025
Your cash-flow calculations included NO expenses, utilities, maintenance, NOTHING! try calculating it again with some real numbers and then see what your actual cash flow is…
What is the current LTV? You will have a lot of options if the property not only cash flows well, but is under 70% LTV.