How to use Single Family Homes to Purchase Commerical Real Estate

Posted by: admin on Sunday, March 16th, 2008

How I used single family dwellings to purchase over 150 units in 4 years. The great thing about single
family dwelling in the aspect of value is that there are plenty of other similar type buildings in the
general vicinity.

The value is very easily determined, it is very cut and dry, a 3 -4 bedroom bungalow,
or Colonial has a very solid value in most areas. With Commercial/ Apartment buildings the values
are a lot more subjective. It has to do with occupancy, condition of property, location, expenses, well
you get the drift on how single family homes are a lot easier to value and use for my purpose of
leverage buying.

The first or second property I ever purchased was a great 4 bedroom 2 bathroom
large east side home that was valued at over $100,000. The property was acquired at a little over
$20,000 and needed little to no rehab. I immediately went to work to do the minor rehab needed and
was able to Section 8 the property out at over $900.00 per month.

This was done in less than 90 days, if you remember the numbers I told you about it left a significant amount of equity to use as I wish. I
was very focused on my ultimate goal of acquiring cash flow producing apartment buildings which I
was aware had limited LTV’s(Loan To Value) so I had to create a down-payment our out of thin air.
The first building I wanted to purchase was about $200,000 and the bank would only loan me 80%
of the purchase price $160,000.

What was I going to do, I did not have $40,000 plus the typical cost to
proceed with an apartment building, the appraisal for the building alone was over $2000.00 and the
insurance for the building was about $3500.0 so as you can see the numbers can escalate very quickly.
I quickly remembered that I read a book by a noted Real Estate Guru that stated you can use the
equity in your Residential rentals for collateral.
I was not sure that it would work, but as sure as the
words were written on the paper, the bank loan officer accepted my offer of using my single family
building as collateral. It went off without a hitch, I took the loan officer all the documents I had
showing that I owned the property and that it was free and clear.
As I stated earlier the property was valued at over 100K and when the bank did there
official appraisal the value was set at $120,000
and I was informed that they would only be able to use 70% of that value.
Let’s take time to do the math, purchased at 20K, rehab 5k and the value from a very conservative
bank was $120k, in the words of Don King only in America. Back to the deal, the bank decided that
they would put a lien on the property for amount needed for the down-payment, which came out to
be around $40,000.
At this time I was overjoyed do to the numbers being so favorable, in less than a
90 day period of time I acquired, rehabbed and used this single family home to not only create a
significant cash flow for me, but was able to create the down-payment out of thin air, in short you can
say this was the key to my success in acquiring small to medium sized apartment buildings. In today’s
market it may be a little difficult to sell the properties at a decent value, but if you can buy a property
for 10-20% of the appraised value and learn how to use the equity in the property this can be an
excellent strategy for you to start in the world of Commercial Real Estate.
I used this example to show
that there are more than one way to obtain the down-payment usually needed in the acquisition of
Commercial Real Estate, the Michigan Market is ripe for the knowledgeable investor to take this turn
in the market and make a killing.

This is just one of the many techniques you will learn as a member
of the The Power Club, I recently read a great book called How to Become a Billionaire and the
consensus was that most were not first to implement or even create the product or service that
eventually gave them the wealth that we all aspire to obtain, most just followed a proven system and
made the necessary corrections to take the previous system, product or service to the next level. In
closing if you join The Power Club you have access to the ideals that have given me the ability to buy,
sell and manage over 400 units, most with little to no-money out of my pocket. The mistakes I made
you do not need to make, learn from a season group of investors and take your real estate from 0-
Freedom in record time
Darrick H Scruggs
CEO