My private lender surprised me with an loan way above acquisition cost.
I got a call that was quite interesting, but aren't they all. This was a woman who made it a point to tell me upfront that she is a real estate broker. After reading "Start With No" by Jim Camp, I have learned not to make any assumptions. She went on to tell me that her husband had passed away, her grandson was living in the house with his girlfriend who got pregnant, had the kid, but he bailed on them and left them in the house. Now, several years later they are still there and not a dime in rent has been paid since. This isn't a new story in my line of work.
She gave me the details of the house and I ran my numbers while I had her on the phone. I came up with an ARV of $170,000. I made her an offer of $100K based on needing to a do an eviction and rehab. I called up my private money guy and gave him the details and he ordered his required appraisal.
The appraiser went out a few days later and did his thing. Then my private lender called me up and said the appraisal came in at $170K. He asked how much I was looking to borrow. I told him I paid $100K so as close to that number as possible. He asked how much I expected to spend on rehabbing the property. I figured as a rental I would be in to it for $10-15K. He then said, "How about I lend you $120K on the property? That way, I get $1,000 a month." After closing costs I figured I'd get a check out of escrow for around $15,000. Yeah, that works for me. There are no income taxes on borrowed money.
As for the eviction, I offered the tenant $1,500 cash for keys if she'd move out in 2 weeks. I normally do not offer cash for keys. I don't reward bad behavior with financial incentives. I have three evictions going now. However, this tenant has special circumstances and in this particular instance it made sense.
Could you use some "tax free" money in your business? A deal like this is all about relationships and the one I have with my lender is pretty solid. Please leave any comments below, share this post with others and head over to my blog for more insights on investing in real estate.