Other Peoples Money

I have been hearing for several years that to expand my buying power I need to get a money source other than the bank. I have pretty much exhausted my local banks for financing. I have several term loans and 1 large line of credit. The banks have been great to me but they are increasingly too slow and want 20% down, appraisals and my first born child.

The deal is there are opportunities everywhere and I need cash. I found a couple of my aquaintances who loaned me money against some of my rentals. I pay them monthy interest payments. Great for me and for them. CD’s are paying less than 1%. I am paying them 8-10%.

I bought a house a couple of weeks ago with my own cash and stumbled on 2 SFRs today that I would like to buy, but have no cash. And my LC is maxed out. I called a buddy of mine and offerred him 1st mortgages on all three houses and 8% (int paid monthly) in exchange for cash to buy the 2 and get my cash back on the one I bought.

What is sweet about this type of deal is that technically I will be using none of my money, the rent for 1 property will pay the interest, ins and taxes, and other 2 rents will give me $800.00/mth cash flow.

Cheap houses are the way to go. If only I could find 10 more folks to loan me money to buy rentals, WOW.

I hear you.

I am looking for any financing about couple years, but don’t have any except of my own.

From point where I am at this time you are doing pretty good and I wish to congratulate you. WOW!

Private money is the way to go. Structure it for no money down in a couple ways:

  1. Debt financing - Points and interest

  2. Equity financing - Think in terms of joint ventures where you can offer equity participation instead of traditional interest. Offer a portion of the rental income and a portion of the future upside equity when you sell the houses.

The key to finding private lenders is not a hard sell or even a strong pitch or marketing…

Just begin to educate people on how it work and how you secure their position.

You can unlock as much private capital as you need if you can do that.

Jim

From the private lender’s perspective, finding a good investor who will give you low LTVs in first position and who pays religiously is GOLD. I have a guy I lend money to and wish I had 4 more just like him. He would take more money, but I don’t want all my eggs in one basket, even with the low LTVs.

I guess I could put my feelers out there more about lending money, but I can’t stand filtering through all the bad deals to find a few good ones.

For those of you looking for hard or private money and having difficulties, make sure you learn how to present yourself and your deal. I had one lady call me recently who talked a good game, said she was an experienced investor and a CPA. I told her to email about her deal and what she was looking for, terms, etc. She sent me a picture of some guys doing demo on a house and asked how much I can lend. Hmmmmm…how about nothing!

–Natalie

Thanks for sharing your experiences with us! ~Jeanne

Great points Natalie.

An investor who can package and present the deal and then perform as committed can make huge returns for a private lender.

Jim

That’s a great story arlanj. How many properties are you renting out? Are you still looking to expand and if so what areas?

I started in 2002

Bought my first house in 2002. A 1/2 gutted old frame house. My wife and I fixed it up and got it rented. Then in 2004 bought a couple more. It snowballed from there. Counting a 4plex and a couple of Duplexes we are up to 58 units. Busy, Busy. We basically invest in cheap houses, and hold as rentals. In Oklahoma. We bought 13 in 2011 and if I get the 2 i mentioned earlier we will have 15 units in 2012.

Wow that is very impressive. How is the Oklahoma housing market? Do you manage these properties with your wife or do you have a property manager?

It sort of just happenned

We just started buying, and my having an accounting and construction background helped.

I retired from the accounting business after 20 years. We manage our own properties. If I ever get them (all or most)paid off we might use a property management. But probably not. I would rather hire an employee to manage them while we are at our vacation home. 4 years ago we bought a double wide(a distressed property of course, that we remodeled) in the mountains of NM, close to a couple of ski resorts. I would like to spend at least a week a month there, not yet though.

My deal is this. My loans pay off in a staggerred pattern over the next 9 years. If I stopped buying now I would have a $23,000/mnth gross income. Take out insurance, taxes, and maintenance, and still a nice retirement.

I need to get my book written. Then the real money will start coming in.

The housing market in Oklahoma is not bad. Cheap houses are always good to buy.

The Lord willing.

Arlanj - thanks for sharing.

Think of joint venturing like this and if you share 50/50 with your private lender; every second house you buy gives you the equivalent of one free and clear house (without having to wait 20-30 years to pay down a bank loan).

If you had systems and experience, you could purchase one house per month for 3 years and then enjoy having 18 free and clear houses.

If the 18 houses provided you with $900 per month rent, you would have $16,200 gross rent per month to enjoy.

Imagine starting this in 2013 and develop a plan to do it.

Jim

I wonder, why don’t we hear from Cris in FL? He was a big inspiration for me with his buy and hold strategy. He used to buy and rent inexpensive houses with his private lender on a big scale as well; he shared lots of interesting tips and shined with optimism. I hope he is doing great and feel him missed a lot.

Arlanj,

What you need to do is package up what you have to offer so it is easy to share and people can quickly get the concept.

You said you have an accounting background. You have likely seen how businesses create P&Ls plus a Balance Sheet when they need financing from a lender. They put together a business plan where they explain the business, why they need capital, how they expect to pay it back and then use the documents to back up the track record.

While you can not advertise in the full sense, you definitely can work your network of existing contacts to see who is interested in investing with you (debt, equity or a blend). Be careful about the laws at the Federal and State level concerning pooled investments and unlisted securities.

If you want to discuss further, let me know. Your track record is a good one based on what you shared. You just need to package it a bit so you can take things up a notch.