Delayed Closings and Off Market Deals
It is when things aren't easy that you make money in real estate. That sentence sounds like it could be a good quote, but it really is true.
Figuring out the answers to issues is one of the main ways you push forward with real estate. This post is going to be a little different than what I normally write since I am out of state looking at properties and juggling closings, both of which are delayed.
Delayed Closing and Off Market Deals
My partner and I up in MA have two deals closings, one is a cash out refinance and the other is a sale of a flip. This means a bunch of working capital will free up do we can grab more deals.
Speaking of deals...
Off Market Properties
With my expectation that we have deals closing. One of which that was scheduled to close yesterday, I began hunting for off-market deals.
Luckily, I was able to find some. A discounted 4 family is one of them. Rents are well below market and the tenants are clearly difficult given the experience we have had even looking at it.
With the current eviction moratoriums, raising rents/evicting anyone is 6 to 12 months out. All of this is factored into my numbers.
Thus, what type of financing I attain and how much we put into this property is vital.
That is where the delayed closing make things more difficult.
The numbers
Given the rents are so far below market, the price needs to be below market, which it is. Even with that said, the numbers okay if we need to do 75% loan to value (LTV) short-term financing.
We still have to put up 25% for the down payment. That is where the delayed closings come into play. Right now we have three deals going and the two that are closing free up a bunch of working capital.
That working capital is what we use to buy properties in cash or with a down payment if going the financing route.
Ideally I'd like to buy this deal in cash, but clearly I'm not going to gamble on both deals being closed within the next 30 days. Thus, I am looking at the deal using short-term financing so I have time to push rents toward market and renovate to raise the after repair value (ARV).
Covering all bases
As long as one of my deals closing the down payment money is no problem. However, I always cover all my bases. What would happen if none of the deals close? I'd have to borrow the down payment as well from a private lender.
What do those numbers look like?
That is the "worst case" scenario and the one that I need to make sure still works. I don't make a habit of losing money on deals, so I then ask myself what is the "break-even" price if this deal is 100% financed for the first 12-24 months?
Then I decide if that number constitutes and offer than can get the deal. If not, then it's back to the drawing board on how it can work.
Working toward the destination
I know this post isn't super detailed on the deal, nor comes to a definitive conclusion. Currently I'm still working it.
There are several more answers and angles to explore, from partnering up and so on. But this post just about the scenarios that come up in real estate investing and how it really isn't out of the ordinary.
It is important to look at these things as opportunities, not road blocks.
Hopefully it has you thinking about real estate and the scenarios that you will work through building your portfolio.
I gotta go, time to keep working these deals!
If you need help working through deals or getting started you are welcome to sign up for the video course and get the one-on-one strategy calls with me as a bonus. You can find out about it on the education page!
