Possible Investment Strategy Question
I am a newbie starting and trying to come up with an investment strategy for multi unit residential properties. I am looking at duplexes to 4 plexes. I wanted to know is it possible to purchase a multi unit that needs work. Purchase with hard money to cover purchase and repairs and then in about six months time to a year do a cash out refi to pay back the hard money loan and use the left over money to fund the next deal. I still want to keep the property in my investment portfolio but would like to use the new equity i created in rehabbing the property to fund my next deal. Is this even possible. Thanks for the help.
That is absolutely possible - are you looking to hold these properties or resell them?
It sounds like a good strategy to me! Are you a rehabber/contractor by trade? do you have a good contractor to do your rehabs? you need to find someone that you trust to not rip you off...
Good Luck!
[addsig]
Thanks for the quick response. I am looking to hold on to the properties and would like to start building a nice portfolio of keepers. My step father is an investor and he has his own construction company that will do the work. He primarily does rehabs for selling back to the market and I would like to do rehabbing as well but would like to also keep the properties in the beginning.
Is there anyone on here actually doing this method of investing that could share some of their experiences with it. I am looking for good or bad info just so I can get a clearer real world picture of what to expect. Thanks. I am so glad I joined this page and can converse with similar thinking people. I am one of those people that likes to discuss what I am passionate about which is real estate and my friends usually are clueless as to what I am talking about. This gets frustrating when I am just trying to get feedback or brainstorm. This site is a blessing.
Most HML's lend at 60-70% LTV, so you'll have to find a good deal....but you should be looking for that anyways.
That's not a bad plan in theory. Just make sure that you've got your ducks lined up. Find a lender that's ok with 6 months seasoning for the refi. Find a lender that will help you get it appraised for what it should (6 months isn't tons of time) and they'll want to see 2-3 years of income/expenses to assess the value (you might just want to "loose" some of the paperwork and tell the appraiser that you only have 6 months of income/expense records).
I'm not saying it can't be done, but there's more too it than just buy, refi, cash out. Commercial loans are different animals from residential.
You may want to give you HML an equitable interest or a flat rate rather than pay holding costs, high interest rates, points, etc. They'll eat you alive. Shoot for an interst only loan if you do this.
Think through the cash flow for the first year. Your cash flow will be the tightest for the first 12 months.....that's also when you'll be paying your HML lots of interest.
Not a bad place to start...as long as you keep pluggin away.
How come everybodies first thought is to run to the Hard money guys? They are called hard money for a reason. Hard to find, hard to borrow, hard to repay.
The deal you have outlined is a perfectly bankable transaction. Especially with Step Dads track record. The Banks will loan a bigger chunk of the deal and will charge you a lower rate of interest.
Other than that my advice is that if you are really planning to hold and manage these properties you will want to move out of the 2 & 4 unit buildings pretty quickly. 12 units in one location are a lot easier to manage than 12 units spread out over town.
[ Edited by commercialking on Date 08/17/2004 ]
Again Thanks for all the feedback. From everyone. This is truly a first class site with first class people contributing. To Hibby76, I am always looking for the good deals. It is amazing all I am learning by just looking for my good deals. I love this stuff. I have a lender lined up who is alright with the 6 month seasoning for the refi. That is an interesting idea you have about giving equitable interest rather than bleed out all of the money towards fees and points. I am going to look into that further.
Commercialking, To be quite honest I never even thought about going conventional. I figured since I was going to be doing rehabs on the properties to start that no conventional lender would lend on it. Do you think that it would be possible to find a conventional lender to fund the purchase and rehab costs? I would be very interested in that because the points and fees definately add up. Would you suggest just a straight loan or credit line? Also I am definately going to move out of the 2-4 unit arena once i get a few for experience. Everyone keeps telling me the same advise that you are whichi s to move into commercial. The numbers make more sense. I am just trying to take baby steps into it.