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Originally Posted by BCD
No Soup,
I'm a bit confused. You keep saying you want to pay cash for properties b/c the interest expense would eat into your profit. However, you are going to pay a LOT more to an investor for the use of his cash to acquire the properties than you would had you obtained a standard mortgage loan. I'm a commercial real estate and business law attorney and regularly represent people who put the deals together and those who put the $ up. I haven't seen a single deal where an investor put up cash w/o having a realistic expectation of making at least 25% on their money. If you are asking someone to finance 100% of the purchase price, they're gonna want an even larger return.
On the other hand, a bank will typically loan new real estate investors such as yourself 80-85% of the property's value at prime + 0.25 or 0.50% - or approximately 8% in today's market. Why pay more than three times that by getting an investor involved simply b/c you don't want to get a traditional mortgage loan? I know you mentioned that you might not qualify b/c you are paid commission and recently switched jobs, but you should at least meet with a couple local commercial loan officers and see what they can do. I think you might be pleasantly surprised given your experience in real estate and strong credit score.
And in the event you are unable to obtain a loan on your own, I'd look for an investor to put up the 15 - 20% of cash and personal guaranty necessary to obtain a loan from a traditional lender. You'll have a lot more luck finding someone willing to do that than to write a check for 100% of the purchase price so he can go in business with someone he barely knows.
-BCD
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Indeed, it certainly would be more cost effective myself if I were to obtain financing on my own. However, I would then be assuming all of the risk. Although I have quite a bit of confidence in my skills and knowledge, it wouldn't be much of an investment without risk. By having another investor, I would be able to manage it and be more comfortable with the level of risk I would be assuming.
I likely could qualify for a loan if I wanted to do so, but I would much prefer to get an investor and purchase the properties in cash. Like I said, I would be more than willing to put some money in, but I wouldn't want to finance the majority of it - if I did, then I would probably just get a loan and do it myself
