<< November 5, 2021 >>
Through an incredible showing of support, we have completed funding for Kingdom House much faster than anticipated. And we’re excited to get started! We want to offer a sincere thank you to all who have contributed to make this next project possible.
- Initial Project Funding 100% 100%
If you are just joining the Compound Impact family, then we’ll make sure to get you up to speed. We use a very specific process for finding, rehabbing, and financing properties which will each ultimately be the home to many refugee families over the years. For an overview, check out our home page.
One specific part of the process involves buying each property in cash (rather than with a mortgage). We will be obtaining a mortgage further along in the process, but by buying in cash, we are often able to save 10s of thousands of dollars in the end. There are a few reasons for this.
First, sellers tend to prefer cash buyers. When you purchase a property, you start with a contract or agreement that states the terms of the purchase and a future date to complete the transaction (the settlement date). There are a few ways that an agreed upon deal can fall through during this period between the contract and the settlement, and the buyer’s financing is a major one. When we buy in cash, the seller knows we won’t have to worry about a lender getting in the way at the last minute. And this can lead to price reductions or being first in line for a great deal.
Second, most of our properties need at least some work before they are ready for renting (sometimes a LOT of work). By making the necessary repairs, we are able to increase the home value significantly.
Why is that important? Because when we wait until after the rehab to get the mortgage, we are able to base the mortgage on the new increased property value rather than the original purchase price. And as a result, we are able to pull out a significantly higher fraction of the cash we used for the purchase and rehab.
So where do we get the cash? We don’t fundraise enough to purchase each home outright. Instead, we only fundraise the amount that will need to remain invested after the home is refinanced. That means for a few months, we need a short term loan that is large enough to cover the remainder of the purchase price and rehab. This is different than a mortgage, and will allow us to purchase the home in cash and complete all the necessary repairs.
So where are we now? We already know where we will get our short term loan and are just finalizing the details before we make an official offer on a property. Once those details are complete, we’ll be ready to purchase a house! In the meantime, we are already looking at properties so that we are ready to act quickly.