Today we closed on the fourth duplex using 15K from our private lender. Here's how we did it.
1. Private Lender
2. Conventional lender
3. Aggressive Wholesaler
4. Cash flow rental market
5. Title company
6. Motivated sellers.
Now that you have the ingredients here's how we used them all to make the CAKE$$$$$
5 years ago I met my private lender. Older woman, early to mid 60's. She's retired from NYC board of education and owns a SFR rental in Florida(some investor experience). At a recent gathering for her grand daughter my wife and I along with our son went for the celebration. While at the party I began speaking with another parent who spent the better part of an hour explaining to me about football pools and how "boxes" work within the football pool. I am very much intrigued by the simplicity and randomness of the football pool BTW..
So after wrapping up our conversation my now private lender comes over and I ask her how her rental is doing in Florida? She mentioned that she recently increased the rent to $1,500 per month and was very excited!!! I then told her about my rental units in the Mid-West and how many of our duplexes rent for $1,200-$1,600 and we pay about 85% less than what she paid for her SFR. "Tell me more." she said..
I explained to her that my market is "strictly cash flow" typically what you buy the property for will sell at that same amount when you decide to sell. I explained to her that typically I/We buy in cash and refinance with a lender in about 45 - 60 days. She was further intrigued and asked if I was looking for a "partner". The light bulb went off in my head and I thought SURE!!!!
The terms of our agreement were simple. As a private lender your (PL) funds will be secured by real property and you send funds directly to title co. not to me. she signed the agreement wired the funds and I closed on the first property 9 days later.
15K loan amount
3 year 36 month term
payments per month are $503.00
Total ROI 21% or $3,108 or $18,108 at the end of 36 month term.
This is a WIN/WIN for both me and my new happy lender. So...You may be wondering if I bought a property that rents for $1,200 per month how do I expect to cash flow if I have to pay $503.00 per month to the private lender?
Here's how.....The first property I bought with the private money loses money month after month...After private lender costs, taxes, insurance, property manager, vacancy, cap x, maintenance and water I make -$64 per month in cash flow... Not a big deal. However I purchased that property for $18,500 and it appraised at 30K. The conventional lender refinanced the property and cut me a check, after loan closing and title closing costs, for $19,500 so guess what I did??? you guessed it, purchased another duplex rental for $19,500 cash (rents for $1,200 per month) and refinanced that with the same lender. This time the property appraised for $31,000 so the lender cut me a check for $20,250 + the title company cut my cost by 25%. This property cash flows $417.00 per month. I then bought the third property (Duplex rents for $1,200 per month)for $20,000 cash and that property appraised for $33,000 and the conventional lender cut me a check for $21,750 after refinancing the property. This property cash flows $460.00 per month. We just closed on our 4th property (Duplex rents for $1,200 per month) for $18,900 which appraised for $29,000 and the lender again, delayed refinance this property at 5%, 30yr AM and cut me a check $18,500. This property cash flows $400 per month So that's 4 properties Gross rents of $4,800 per month and it all came from an initial 15K from a private lender. Let's breakdown the numbers further.
Total cost of wholesaler = 3k per property, so 12K total in cash (My expense/my cash)
Total title co closing costs = $775.00 K per property = $3,100 (My expense/My cash)
Total lender costs = 2.2K per property $8,800 (paper money, not actually out of pocket)
Total out of pocket hard cash cost to wholesaler and title Co = $15,100 X 4 properties
Total gross rents = 4,800 per month
Total cash flow x 4 units = $1,652 - $503 (private lender) = $1,149 per month!!!!
Total annual cash flow x 4 units = $13,788 yr 1-3, Year 4 = $19,824(no private lender)
Total cash flow x by year 5 = $81,012 - $15,100 = $65,912 ALL FROM 15K!!!!!! And Oh BTW we have a check for 18K from the 4th property refinance so $65,912 + $18,000 = $83,912
EARNINGS FROM 15K AT THE END OF YEAR 5 = $83,912.00
WE HOPE YOU ENJOYED THIS ARTICLE....BASED ON TRUE EVENTS
1. ROI - Return on investment
2. PL - Private Lender
3. SFR - Single Family Residence
4. K = Thousand Ex. 15K = $15,000