I and two other partners are about to begin investing in residential homes as long-term rental properties in northern California. We have extensive residential remodeling experience, 100k in cash, but do not qualify for very substantial bank loans. We are wondering what should be our strategy for acquiring homes. We could potentially buy a single home, maybe a foreclosure, either through a bank loan with a lot of money down, but at that point, how do we get our money back out in order to get other homes. For this reason we are thinking of doing owner finance and using the capital for remodeling costs, hoping to build a portfolio in order to get outside investment. What is a recommended strategy?
If I was in your shoes I would concentrate on getting Hard Money Loans (HML) HML lenders will make loans based on the value of the property. It will pay for the purchase of the property, you make initial payments for the work but you should get weekly or biweekly draws as the rehab is completed (to keep you cash reserves up). One the house is rehabbed - you can either conventional refi to pay off the HML (they are expensive) or sell retail and have proceeds of the sale pay off the HML and pull you profit out. Check with smaller regional or local banks - they often have the best terms for these types of loans.
Also look for homes with lots of equity. The owners/sellers may be open to owner financing.
Have you considered using private lenders to fund deals? There are plenty of people of people out there willing to lend if they are able to see a business plan and a profitable opportunity. I know of one website that is set up for funding business startups…even real esate investments. PM me and I’ll give you the website.
Another thought is using BLOC to purchase properties with cash and once you own the property finance through conventional lender in order to free up your working capital to move on to the next deal. If you want to learn more about obtaining these BLOC’s I advice you to visit the “Business Credit” forum at Creditboards.com. Be aware, that you will be required to give a personal guarantee to get a BLOC and it may take multiple BLOCs to obtain the amount of money needed to purchase properties, especially in California.