Okay, I have two deals I am working on. I am looking on how to best structure these two properties to start my real estate career.
First Property
Own free and clear. Worth approximately 30,000
Second Property
Owe $16,000 but not in my name. It is in my father’s name. Worth approximately 80,000 ARV. Repair is about $5,000
How can I best structure these two deals. This is what I am thinking and please see if I am on the right path.
Take home equity line of credit for the first property (approximately $24,000)
Turn around and pay the note of $16,000 for the second property and have the deed transferred to me.
Once the deed is transferred, get Home Equity Line of Credit on that proprety (approximately $64000) after doing repair.
Rent out both properties as owner finance and utilize the line of credit to purchase rehab properties free and clear and do over and over again. I will do the math and strategy to see how it will play out.
Is that the right strategy? Can i build substantial real estate income doing this.
How about leaving the first property free and clear, and then ask dad to subordinate to a new 1st TD for say $10k from a hard money lender, fix it up then rent it and then turn around and refinance putting a permanent 1st TD in place to pay dad and the hard money lender off.
Then put a roughly $38k 2nd in place as a Heloc and then you have the one property free and clear which could be a reserve down the road producing cash flow (Rented as portfolio) and the second property rented paying the $26k portion of interest and principle and supplying a positive cash flow.
Then try to work within the $38k credit line to put some cash down with hard money, fix up and re-sell a new property from there, this way you have cash flow to help support cost’s and ability to buy a house for say $35k ($7K to $10k down with hard money for balance) with a FMV of $85k to fix (Put $10K to $20k into rehab) and flip.
If you sell a property on a owner finance it is hard to go back and re-finance or change the finance structure after a sale! (Disclosure)
If you did 3 fix & flips like this a year you could concievable create a $75k or more income every year that managed properly could grow significantly. Diversify part of this income to portfolio properties, part to your investment base and part to raising your standard of living.
Remember every time you refinance you end up paying escrow cost’s, points and misc expenses.
Thanks Gold River before I comment on the technique, I want to clarify the $16,000 is a first lien by Chase. How does that fit into the strategy? I can’t subordinate to a bank.
You will need to take the $16k plus $5k repairs plus the $5k I suggested for reserves and payments and borrow it from a hard money lender, then refinance the $26k as I suggested.
GR
No. What I meant by owner financing is that I will rent out the property but allow the tenant a lease purchase option. My words might have been misconstrued.
Dad is not actually selling it. He is 73 and has cancer. He gave me the property. He doesn’t need the proceeds. He told me I can do what I wish.
The only problem I see with taking the $16,000 and $10,000 is that the hard money lenders will only allow lend you either the lower of ARV or the purchase price. If I show a very low purchase price, then won’t they automatically just loan me that money? I would have to come up with the remaining $10,000.
If I show the purchase price as higher say $40,000, especially if the ARV is $80,000 then I know I can get the repairs and reserve funded?
Hard money is hard money, if the property is worth $80k either before or after a little fix up, some hard money lender will loan you the money!
You do not have to have a dime in the game if you already possess the property. Your only talking about initially getting basically 33% of ARV on something you already possess and own. You might have to pay 3 to 5 points basically $780 to $1300 and guarantee 3 months payments at 12 to 14% for example, but your only going to take 4 or 5 weeks to fix it up then refinance it, so really easy cost.
Try calling some of the hard money guys listed on this site, if you don’t find one for your state or that will do it, give me a PM with your email and I will send you some more to talk to!
This should be a very easy deal for a hard money lender and the collaterol percentage is fantastic.
You can also use your lawyer as an intermediary and you don’t have to have a license. That of course drives up the closing cost but charge that cost to the buyer.