Thread: Real Estate Financing?

I figured I should probably ask here, since we all know that mortgage advice talk is a party favourite!

In all seriousness though. I made a thread earlier in this forum seeking help with my first "large" property deal. I got a ton of fantastic replies, and closed on my first building earlier this year.

I have learned a ton in the few months I have owned it, but I did find a way to make some good money in the process (In the 2 month span of owning, increased revenue by 20%, and shooting for more after I am done rehabbing the place). What I am doing isn't rocket science, and is very easy to replicate with properties around the 600k to 750k mark.

My question is, how do I go about building up off what I have, and get loans to buy more properties? I am NOT looking for an investor, I would just like to get some input on ways of acquiring funds.

Right now, the only way I can think of is to write a solid business plan, and get a small business loan for $500k. I can then use that money as down payments on more properties. I know that even with a fully leveraged property I am still netting a good profit at the end of them month, my roadblock now is just to get those properties.

Are there other financing avenues I should be looking into?

Any advice is greatly appreciated.

Home equity perhaps! You can borrow up to 75% of the loan value..

^^ But isnt that if you own the property out right? From my understanding, since the big real estate bust its that no bank will give you a loan for no more than 80% of the apraised value. So if its a 600k property, you would need at least 120k down. After you recieved your loan, you are not allowed to leverage that property for a larger loan unless you own the property out right or have more than 50% equity. This is what one of my real estate friends have told me. He could be wrong, so other please chime in.

My first property is not owned outright, I made a relatively big downpayment, but thats about it. I don't think I can borrow against it at the moment.

The goal is to leverage your funds.

Home equity's are dooable, however depending on the lending institute require that you own the property A) for longer then 1 year B) in your personal name, NO LLC'S.

Alternatively, depending on your credit and financials you can just apply for another loan.
Obtaining a 'pre-approval' from a lending institute of your choice is probably the best way to start. This way they have done their due dilligence, approved you for a loan and are now waiting on you to decide on a property you want.


Hard money lenders will charge you 'an arm and a leg' in interest, so based on your situation and goals, that doesn't sound like something you will want to do.

good luck

First off, congrats on your first property! Whats your exit strategy for the deal?

As far as financing goes, you need equity. Speaking from experience in the US market, you aren't going to find banks/institutions/sba/traditional financing for what you need. In this market, everyone wants you to have 'skin in the game.' Junior/Mezzanine lenders are all out of the game right now due to the market crash (most being out of business completely). 100% financing is gone, unless you can get creative with the seller carrying paper.

You either need to find an equity partner to split the deal with, or exit your current deal, and reinvest in the next. Both options have pros and cons. Most potential investors are going to pass due to your lack of experience. Most will want a track record of 100% completed/exited deals. You're also going to need to pony up for legal/admin costs to setup a partnership (dont skimp on this, it will cost more in the long run).

My advice is to fully exit your first deal before moving on. In this market, getting into deals is much easier than exiting them. Just the nature of a buyers market.

Spencer,

Thanks for your great response as always. I am actually in the process of rehabbing the place right now. It's a 4 unit building (small, but I'd rather not get over my head to begin in this industry) and I evicted one of the tenants (rents were low, and you can't increase more than 2% or something like that), another tenant moved out. I already have a signed lease on the unit, with a significant price increase (and will increase again in 12 months) and the other unit also has a signed lease for double the current rent.

I bought the property in the heart of downtown for a good price IMO, and the demand for apartments here is crazy (all gov jobs are in the area, 2 universities in the area, and all the people that just want to live downtown). I am certain that my plan is feasible and I am very happy to see $$$ results this early!

I was approached by a lady that owns a property near mine and offered me 50k profit over what I paid, but I am quite confident I can make at least 200k profit when renovated as comparable properties on the same street are selling for 900k+ and I paid SIGNIFICANTLY less than that.

I will talk to my banker and see what my options are. I am trying to do this without the help of my parents (they helped financially me get my first one) and may have to start small.

We shall see!

4 units @ $900k.... Yikes!

Whats the gross monthly rent for all 4 units?

Looks like rehab/resale is probably the only viable exit. Holding doesn't make sense at that price/unit. Sounds like a similar market to San Francisco/NYC.

Before any rent increases, gross rent was at $4100, I will have it at about $6000 by next september. Cap rates of around 5 are not uncommon in this part of town as the appreciation of the land more than makes up for it. People are making 100s of thousands off these properties just by sitting on them for a few years!

Originally Posted by Waldoonay

Before any rent increases, gross rent was at $4100, I will have it at about $6000 by next september. Cap rates of around 5 are not uncommon in this part of town as the appreciation of the land more than makes up for it. People are making 100s of thousands off these properties just by sitting on them for a few years!

What town are we talking about here? With cap rates that low in this market, I would look into investing out of town. Your money will go a lot further and you can get into multiple properties elsewhere.