11 properties, all at once, nothing down - Posted by Paul Maguire
Posted by Paul Maguire on March 14, 2001 at 10:04:11:
Many of you e mailed me about hard money and what it was. Here is an actual deal, using hard money that I did in July of 2000, and the results.
I came across an investor who had a portfolio of 11 properties through a broker I know. These ranged from 1 bedroom single family(SFR), to 5 bedrooms SFR, and several multiple unit 2-4. All of them were rented, all were as is.
Two had no debt, the others had about 600000 in combined debt with various lenders. The seller wanted to net 450,000. This made the price about a 1.05 million. The market was upwardly moving at the time, demand was good. The sellers problems was that selling these individually, he could get more money, but it would be 11 escrows, 11 buyers, 11 inspections and at least 11 headaches. As he put it to me " I dont want them anymore". He bought all of them as foreclosures in the mid ninties, and was taking his equity.
What I Did:
I offered him his price, after evaluating that I could sell these for about 1.7 individually. I called some real estate agents, and asked what i could sell this or that for in this neighborhood. I called a HARD MONEY LENDER, and worked out a 4 seperate loans, all using 2 or more properties as collateral for the four loans. The loans totaled about 650,000. Thus I had 650,000 in new cash, which paid the sellers equity, paid my closing, and left me about 35000. in cash which I got later to fix up some of hte properties. The other loans that he had remained on the property, with me now paying those loans monthly on his behalf. The hard money lender charged me 32,500 in points, plus 5000 in additional fees. Jumping ahead to last month, I sold 5 of the properties, realized a net gain of over 500000, and did a 1031 exchange into a 1.9 million dollar 20 unit apartment building, with below market rents. I raised the rents, and will be looking at a pos cash flow year one of close to $100000.00 I still own 6 properties, with equity of close to 450000.00. How. Upwardly Moving Market. Properties in Oakland have gone up 22% last year
The hard money lender was lending on the property values, not necessarily the borrower. And sure, I paid close to 40K for the money, but so what if I am looking at making 10 times that, or even 2 times that.
And the biggest friend to any real estate investor…TIME and Appreciation!
And what did the seller do? He did a 1031 tax deferred exchange into a million plus single family home near San Francisco that he rented out after closing for 6500.00 a month, and will move into next year so he can enjoy the benefit of $250,000.00 in tax free money when he sells it as his primarily residence 3 years from now.(see your accountant).
This was not a beginners deal, but the structure has been used on many deals by many investors. I also sold these houses as is, and got much more for them then even I thought, due to high market demand. Don’t be afraid to use brokers, they will find you deals. As you will read in most of the real estate investing books, anything but your cash is what you are trying to do to get these properties no money down. IF I can borrow 600000 to do this deal, and take no money out of my pocket, that s the best way to leverage and make money. IF THE VALUE IS THERE!!! My deal and most of your deals are the same, except you just take away a zero or two. And my deal and Donald Trumps deal are the same, you just add a zero or two.
Ok, maybe three.
Good luck to you all