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June 2016

Using wholesale Fees to definance houses

Retiring landlords are a great source of private funds!


June started with a bang. I locked up two deals and wholesaled them both for two checks totaling $45,000. Just after that, I was speaking to a retiring landlord who was in the process of selling off his rental portfolio and retailing all his houses. I asked what his intentions were with his pile of cash. He said he was going to get back into notes, but not like he had in the past. He didn't want to do any risky note deals. He was looking for safe investments with a good return, but didn't expect anything too high. What an opportunity!!


I went back to my office and looked through my spreadsheet of rentals for a few that might be good candidates to refinance. I noticed I had a few houses with 9.9% interest only loans on them, but with low loan to values. I started crunching my numbers to see what I could put together. I sent my new private lender the following email;


We spoke about loan terms you would consider on a rental house. Now that I split up my pile (Read April's DotM - Reese's Peanut Butter Cup Method), I'm looking to take out my 10% loans. I just wholesaled two houses for $68,500 so I'm going to use some of that money and private money to deleverage at least one house. Can you let me know what you might consider? I have a $225K house that I owe $97K on. I'm thinking of paying it down $37K and putting a new $60K 1st on it.


(Side note - I ended up using the $68,500 in wholesale fees to pay down one house that had the highest loan balance. I put $50,000 toward the loan and the rest in the bank. I used the $45,000 in wholesale fees from my most recent deals and cash to do this refinance.)


We sent a few emails back and forth that basically discussed terms, timeline for available funds and which properties I wanted to borrow against. I had originally picked out 2 houses I thought this lender would like, but then I decided to change my strategy and present him with 3 houses. I sent the following email;


You said either, but would you do more? 5 years is great for me. 60-90 days to fund also works fine for me.
Would you be interested in doing another $60K on the house on Cedar Ave as well? I bought this house and the one across the street. When I showed you the original deal, you said you'd sell one to get the other free and clear. I think I did pretty well when I sold another house that I negotiated 0% financing on, then moved the seller carry over to the Cedar house so it will be F&C in 8 years. All those
Peter Fortunato classes paid off.

I've got a commitment from another lender on the Cedar house, but she's out of state and wants a shorter term. I'd much prefer to do business with people I know locally and get 5 years. We can do all three at one time if you'll have enough cash available - $195K.

How about 1st position loans on these houses?
D St - $60K
Acacia Ave - $75K
Cedar Ave - $60K


With you're $195K and my $66K cash I'll pay off the $261K 9.9% loans and put you in first positions on all three.


We did the refinance and here is what the

end result looks like;


Owe
New 1st
Cash Needed
New Payment
D
$74,000
$60,000
$14,000
$350
Cedar
$90,000
$60,000
$30,000
$350
Acacia
$97,000
$75,000
$22,000
$437.50



$66,000







$261,000
$195,000


Rate
9.9%
7%


Debt Service
$2,153.25
$1,137.50
$1,015.75
New Cash Flow










The equity in these three houses is now approximately $485,000, and I did all this right here in beautiful southern California with simple, entry level tract houses using my Wholesale Fees to Definance Rentals technique. It isn't some super secret trick. It just takes diligent effort and a good network of investors/friends.


Please leave any comments below and head over to my blog for more insights on interesting in real estate.