401K, HELOC and Other Options You Can Use to Fund Your Real Estate Deal

Are you still looking for inventive ways to get your multifamily property deal done? The venues that you can utilize to get your deal done are numerous. Below are ten more possibilities for you to consider.

 

1. Triple New Lease Option – This is where you lease the property from the seller and you pay rent but you have an option to but as well and sublet. This is the “lease-option” for the property.

 

2. 401k Loan – If you have your own 401k money or you know someone who does, you can actually borrow against it for funds. Be careful because if it is your 401k money and you leave your job or get laid off, then the money is immediately due. Once you leave the company you cannot borrow against it.

 

3. HELOC – Home Equity Line of Credit. If you have dead equity, pull it out. A line of credit means you can access it whenever you want to.

 

4. Home Equity Loan – You will get a lump sum amount and you pay it back over time.

 

5. Credit Card Loans – A word of caution: you need to be very judicious with this. This is more for short-term loans, especially if you get a low APR offer. Understand that the minimum payment will be 2% of the outstanding balance. This could be touch from a cash flow perspective because you are paying basically 24% of the balance due over the course of a year. It can be a great short-term play.

 

6. Unsecured Lines of Credit Personally – you can go to the bank and get an unsecured line of credit personally or you may know someone who has an unsecured line of credit or who can get one and become your money partner.

 

7. Unsecured Lines of Credit for Business – This is another direction for you if you have been established for a couple of years. You can do this with your business or with someone else’s business that can become your money partner.

 

8. Private Lender – someone with cash that will be a private lender.

 

9. Private Equity Partner – equity partner who will put cash into your deal.

 

10. Subject To – as you do it with houses, you can do this with any property. They all have “due on sale” clauses that you need to be aware of.

 

As you can see, the potential private money sources are plentiful. You do not have to rely upon all of the “old” standards. With an abundance of sources, your ability to successfully put together your multifamily property deal is almost limitless.

10 Creative Applications for getting your Mutifamily Deals Done

When you are trying to figure out how to get your multifamily deals done, there are techniques that you can use to do so. Any one of these techniques can be used individually or in a combination. They can be applied by rehabbers, wholesalers or buy and hold entrepreneurs.

 

  1. First Mortgage: you go to a lender to get a first mortgage.

 

  1. First Mortgage Paper Cash Out:  you can get a seller to carry back a first mortgage and if he wants cash instead of payments, then you can sell the note. You can do this for private investors as well. A seller might want to be cashed out.

 

  1. Second Mortgage: you can get a seller to carry back a second mortgage or you can get someone else to finance the second mortgage for you.

 

  1. Second Mortgage Paper Cash Out: the seller is carrying back the second mortgage and there are people who will buy the second. You are simply keeping the first in place. There will be a heavier discount but there are people who will buy second lien positions and you can cash out the seller that way.

 

  1. Blanket Mortgage: you’re getting a seller to carry back a second but they want extra collateral. You allow their mortgage to blanket over another piece of property that you own.

 

  1. Blanket Over Other Collateral: you want the seller to carry back the second mortgage but the seller wants more collateral. So, say you have a boat or a car or something else to offer as collateral. You can offer that piece of collateral and make that part of the lien.

 

  1. Deferred Down Payment: This is a way to get an interest free loan.       You buy the property and either assume that the seller has first mortgage or you get a new first mortgage.       You then give a down payment 12 months from now. This is another way of rephrasing a second. Calling this a Deferred Down Payment implies that there is no interest being charged.

 

  1. Barter: trading something for something. This is getting in the creative arena. Let’s say you have talent as a bookkeeper and you want to buy the property, you could barter your services against the down payment on that property. You could provide 12 months of bookkeeping services and if you need the seller to carry back $20,000, then you provide $25,000 of bookkeeping services. You then have the seller carry back a note on the property.

 

  1. Barter Assets: instead of putting a mortgage, for example, on your boat, you give it to the seller as consideration for a down payment on the property.

 

  1. Turn Around Joint Venture: You could approach landlords of distressed properties that may be out of state. The landlords are amenable to terms that you can agree on so you agree to a joint venture. You come in and turn the property around and they give you half ownership in the equity that they have. This is a great way to get in a deal with no cash.

 

Your ability to put together multifamily deals is only limited by your imagination. Think creatively. There are plenty of other options available to you.

 

 

 

10 Advantages of Owning Multifamily Properties

In these tough economic times, people are looking for sound investment opportunities. People desire investments that are low risk but yield great returns. Such opportunities are hard to come by. Owning multifamily properties offers you the best of both worlds. Here are 10 advantages of owning multifamily properties.

 

1. You can outsource your property management to professionals. This allows you to go on vacation.

 

2. You can buy with none of your own cash. It is easier to get financing on apartments than on single family homes. The more you borrow the less they look at the borrower’s credit. You can raise private money to cover any cash requirements.

 

3. Apartments are made to cash flow even with nothing down which means that there is one roof with maybe twenty apartments under it as opposed to one house with one roof. Houses are made to be bought and sold to homeowners. You can convert them to rental properties but apartments are designed to be income-producing properties.

 

4. You receive better leverage of your time and effort. It is much easier to maintain a 10 unit apartment building than it is to maintain 10 single family houses.

 

5. The value of income properties is based on the income. It is a function of the net operating income and you can create value by raising the rents and cutting the expenses. You will then know how to invest your money and your time.

 

6. Less competition. There are fewer people out doing multifamily deals than single family deals because they lack specialized knowledge and they lack mindset.

 

7. There is less risk. You have less risk from the standpoint that you have multiple tenants and multiple revenue streams. An apartment is a business. If you have a house and you lose your tenant than you are feeding the house. There is mitigated risk through apartments.

 

8. Non-recourse financing. The more money you borrow, the easier it is to borrow. When you get to borrowing two million dollars and above, it becomes non-recourse financing and this means the asset is the sole security for the loan. There is no one personally guaranteeing the loan.

 

9. Condo conversion. You can buy apartment buildings and convert them into condominiums. It is a different strategy because you are putting all of your cash forward and then pulling out. It is not a long-term hold strategy.

 

10. The sub prime lender bust. With sub prime mortgage lenders falling out of the market, there are people who cannot qualify for houses and foreclosures are up. This means that the demand for rentals is going up.

 

Buying multifamily properties allows you to have low risk and great return for your investment. If you are looking for an investment vehicle, multifamily property investing is a great way to go.

5 Lead Generation Resources For Finding Motivated Sellers

 

Lead Generation is at the heart and soul of any business and it is no different with multifamily investing. Are you at a loss as to how to track down sellers of multifamily properties? There are five solid resources for finding motivated sellers. These five sources are direct mail, brokers, www.loopnet.com, bird dogs and other venues.

 

Of these five resources, direct mail is the most effective technique. This simple technique involves mailing letters to owners of multifamily properties in your target area and asking them if they would be interested in selling.

 

The wonderful thing about this technique is that you can employ its use in other cities. If you are going on vacation, you can find all of the people in that city who own apartment complexes in your hometown and then send them a letter asking if they are dissatisfied with their multifamily property and let them know that you would like to buy it. Let them know when you will be in their city and when you would be able to meet them.

 

The second resource for finding motivated sellers is brokers. Probably the easiest method of finding brokers is through www.loopnet.com. You can get very specific about the type of property that you are looking for. You can enter a zip code with a price range and it will give you a list of all those properties that meet your criteria that are on the market.

 

When you are looking at the properties, some of them will have brokers. You can get the broker’s name and call him. Do not email the broker. If you are not going to even bother to pick up the phone to call then how serious are you? You should call the broker and say, “I saw your listing on www.loopnet.com. Can you tell me about it?”

 

After the broker tells you about it, then you say “that’s not exactly what I’m looking for. Let me tell you what I’m interested in.” Now you can tell him precisely what you are looking for. The more precise and the more knowledge you convey, the more confidence you will build in that broker that you are a serious buyer.

 

Loopnet.com is also a resource for finding motivated sellers. Once you find a multifamily property on Loopnet.com, you can call the seller up and negotiate. You can ask for the financials and see what is missing. If anything, Loopnet.com is a great place for you to “practice” negotiating with sellers.

 

The fourth resource for finding motivated sellers is the bird dog. The bird dog is someone who is out hunting deals. Their goal is to find something that looks like a deal and then they hand it to you to do the work. Bird dogs are informal brokers who scour the market for deals and then match the deals to buyers.

The fifth resource, “other”, is basically a catchall for all other types of resources in finding multifamily deals. A few of these resources are estate attorneys, Laundromat service operators, plumbers, property inspectors and insurance agents.

 

These five resources offer you great opportunities for attracting and getting in touch with sellers. If you utilize these resources you will have multitudes of potential sellers at your disposal.

 

4 Ways to Structure Your Multifamily Deal with the Seller

When you are looking for sources of funding for your multifamily deal, you will save a lot of time and energy by targeting predisposed sources of funding.  A great example of a predisposed source is the seller of the very property that you want to buy.  In addition, you have four ways to structure a deal with a seller.  These four ways are through a second mortgage, the seller owns the property free and clear, a deferred down payment or a lease option.

Another thing you need to keep in mind along with the four ways to structure your multifamily deal with a seller is that there are two types of sellers.  You have previous sellers that you can work with as well as sellers from marketing.

Previous sellers are sellers that you approach as you complete the real estate deal. The seller is walking away with cash in hand.  Here you have a private money source right in front of you.  You need to take advantage of that opportunity to ask them if they have plans for the money and if they would be interested in doing a multifamily property deal with you.

Sellers from marketing are the sellers with whom you have tried to come to terms with on a deal and you are unable to for that particular real estate deal.  Do not discount them when another deal comes into play.  Since you are aware of what they expect or look for in a deal and what they do not like, then you can approach them with another real estate deal that matches their criteria.

Probably the most well know of the four options is the second mortgage.  In this scenario, you ask the seller to carry back the second mortgage.  This, in turn, lowers the amount you have to find from other money source.

The second option is when the seller owns the property free and clear.  You should be able to at least get the seller to carry something back, either as a first or second mortgage.  You need to be sure and determine what their underlining debt structure is.  Find out what kind of financing is on the multifamily property.

The deferred down payment is the third possibility in structuring your multifamily deal with the seller.  The idyllic situation is to buy yourself enough time so you can make improvements to the multifamily property and then refinance your way out of it.  You will need at least 12 months to refinance.  You can do it earlier than that, however.

The fourth and final possibility to structuring your deal with the seller is through lease options.  This option is often overlooked.  You can buy properties under a lease option as an investor.  You sign the lease for the multifamily property as the master tenant.  You then make payments to the owner.  Then, to cover the cost of your lease payments, you sublet to tenants.  Their rental payments cover your lease payments.

Working with the seller allows you great flexibility in the various options that are available to you.  Not only do you have the ability to target previous sellers but you can work with sellers that are still searching for the right deal.  The four potential ways to structure a multifamily deal with sellers make sellers a great private money source.

Components Needed to Create Wealth Through Real Estate Investments

 

It is probably pretty safe to say that everyone is looking to create wealth. Real estate investing is an excellent venue through which you can create massive wealth. There are four components in real estate investing that you need to accomplish this goal. These components are specialized knowledge, marketing, systems and mindset.

 

Specialized knowledge encompasses all of the techniques needed to acquire multifamily properties. In addition, it is also the knowledge that you need to operate multifamily properties, analyze multifamily properties and most importantly, how to find multifamily properties.

 

Marketing in real estate involves three different areas that you need to be aware of. Marketing means marketing to find deals, marketing to find private money and marketing to find tenants for your property. Of course, you can use a property manager to find tenants for your property, but you still need to be cognizant of the fact that this is an area that requires marketing.

 

Marketing is extremely important in real estate. If you are not attending to your marketing, then you do not have a business. If your phone is not ringing, then all you have is a hobby and not a business.

 

Systems are what you will put in place so that you will ultimately have other people working at your business for you. You want to have systems in place where others are doing your marketing, property management and bookkeeping. You do not truly have a business unless there are documented systems.

 

Your definitive goal is have your business serve you. A business is an asset that throws off income forever without you and your direct involvement.

 

Mindset is the fourth and probably the most critical component of real estate investing. None of the items above can happen unless you take action. Taking action comes down to having the right mindset, and overcoming the limiting beliefs that your subconscious places upon you.

 

You cannot separate mindset from your real estate investing because you ARE the business and your mindset will determine the direction your business takes.   The strength of your business is a function of the strength of your mindset.

 

Creating wealth through real estate investments is very real and it is up to you to take the initiative and take the necessary steps. You can use parts of these four components, or you can use individual components and make money, even good money, but if you want to have wealth, you will need to have all four components in place.

Ingenious Ways to Structure Your Multifamily Property Dea

 

There are some very ingenious ways to get your multifamily property deals done. Three of the lesser known avenues for obtaining private funds are the wrap around mortgage, splitting off the property and the option. Here we will examine how each of these options work.

 

Wrap Around Mortgage: this is the scenario where you will take over someone else’s note. Let’s say that there is a house that you want to buy and it has a first mortgage on it. They are actually going to be the lender. You will pay the seller. Your note is written with them and their note wraps around the existing note.

 

For example, you buy the house for $100,000. They agree to no down payment. Their mortgage is $80,000. Your mortgage to them is for $100,000. They get payments based on $100,000 and the mortgage is wrapped around the $80,000 mortgage. Let’s say their principle interest payment before was $800.

 

Your principle interest payment is $1,000. I’m paying them $1,000 and they have to pay $800 so they are making $200 per month in passive income because of the wrap around of their mortgage.   A wrap around mortgage means that your loan is of a higher amount with different payment terms.

 

Splitting Off the Property: let’s say you own a 10-unit apartment building that you bought on 3 1/2 acres. The building sits on one acre and the other 2 1/2 acres is raw land. You put it under contract and you have 60 days to close. You can then find a buyer for the land and get that under contract and have them bring the money at closing. You could use the money for the land to be the down payment on the apartment building and it is split right there at the table. You are splitting the property and pre-selling it before you go to closing.

 

Option: you can get an option on a property. You could lease with a lease option or you could do a joint venture turnaround. Another twist on this is that you will not be a 50/50 partner but instead will come in and improve the property. It is worth $900,000 today and you will drive it up to $1.2 million or above.

 

You will do that at no charge but you want the option to buy the property at $1.2 million. The owner is getting everything up to a $300,000 increase and you get everything above the $1.2 million. This is another form of a joint venture turnaround. You have the option rather than an equity partner.

 

Wrap around mortgages, splitting the property and options are just three more great ways to structure a multifamily property deal. The more you look at putting together a multifamily property deal, the more you realize that the options that are available to you allow you great flexibility.

Areas of Asset Management of a Multifamily Property

 

 

The ability to improve your multifamily property boils down to you being a good asset manager. The purpose of asset management is to increase equity by raising NOI to cap out the property. Asset management boils down to four areas: property management, repositioning, adding income sources and reducing expenses.

 

Do not confuse asset management with property management. Property management is the day-to-day operation of a property. Property management involves keeping the property up, collecting the rent and maintaining it. Asset management is adding value to the property.

 

Asset management is the fun part of owning multifamily property. This is where you get to be creative. Thinking of creative ways to raise rent and decrease expenses is an example of asset management. You are looking for value plays.  Every time you consider a multifamily property deal, you need to be examining it through asset management “glasses”.

 

You are not a retail buyer. You are looking for ways to improve your multifamily property and add value to it. You need to always be wearing your asset management “glasses” when looking at potential deals and when operating your properties.

 

Property management is pushing the rents, raising the collections, increasing the occupancy, and keeping expenses in check without much capital expenditure. This involves making improvements without spending a lot of money.

 

Repositioning is changing the appearance, reputation, and/or the image of the property. It involves capital if you are rehabbing properties and changing the tenant mix. It might mean converting an all bills paid property to an individually metered property. Many times it has to do with the reputation. Changing the name on a property may help change the reputation.

 

Adding income sources involves adding onsite laundry facilities or putting in vending machines. You could also amenities like cable or internet services. Other possibilities include a childcare facility or storage units. You can really get creative when it comes to thinking of additional sources of revenue for your multifamily property.

 

Reducing the expenses on your multifamily property means that you look at every expense as something that can be eliminated or reduced. This does not mean that you become slumlords but instead means that every expense should be something that can be optimized. You have a responsibility to provide your tenants with safe and decent housing and responsibility to yourself to do so the least cost possible.

 

Evaluating a multifamily property with the asset management aspect of it in mind can greatly assist you in determining whether it is a deal with pursuing. At the same time, if you currently operate a multifamily property, you need to always find ways that you can add value to your property. Proper asset management will enable you to cap out your property.