Question I have a partner in Chicago, a US citizen who has been investing in real estate there for many years. Transactions…
a question
I have a partner in Chicago, a US citizen who has been investing in real estate there for many years. The deals we do are flip deals in northern Chicago. Generally the purchase price is 250 renovations 100 and the inheritance is 550, more or less. Such deals usually take a hard money lender. Because my partner has a good credit score and made a lot of deals, there are much better terms and he takes the loan on it. In every transaction you need to find investors who invest the 20%, usually 60-70k. The problem is that the collateral I can give the investor is a second mortgage and a promissory note. Usually investors feel less confident with such collateral.
I also show them the history of transactions and the profit that came out at the end, but they still don't feel safe with second mortgage.
What other options do I have for investors to feel confident and invest in the deal?
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You give them a very low return on their risk. In leveraged deals where they have a greater "risk" they need to earn more. You must pay them at least 15% -20% for the money and suddenly you will see how their depreciation "disappears".
I work with investors in the following model:
If you have additional assets that are not mortgaged - you can mortgage them in his favor.
That's what we do in Milwaukee.
By the way, I do not need to rewrite a mortgage on any property that is sold or purchased and can work with the money on a number of properties.
In addition, it allows me to define a contract with the investor for a period of one year and not necessarily until the sale of the property. Investors really like it because nobody really wants to borrow money for a three-four month project...
Warning note about a property in the country? Transferring some of your amount to a solicitor with a lawyer, until the end of the transaction, and signing a contract with the lawyer that this money is used as security for a transaction in the US… If you got stuck, you did not return the loss… the money went to the investor. No one will agree to be in a second mortgage after the bank.
Why take a hardmoney loan ?? If your partner has good experience and credit you can take construction loan at 5.5 interest.
That's what I do
In my opinion, and I said this to more than one venture, if you want to give more confidence to investors, you will also put money into the deal (even if at the level of 15% -20% of equity)
Or take a Hard Manic style loan
You can propose to your depositor to be a MONEY PARTNER in the transaction and establish it within the Joint OPERATING AGREEMENT LLC as my predecessors suggested. Hello!
Ori
You can make a common llc and define the relationship in the Operating Agreement
Hi Uri. A really interesting question. As a US citizen I do similar deals with investors but less flips more cash flow and the collateral is an LLC partnership and domain for your collateral. I would also love to hear more options. ?