Mortgages & Creative Financing

How to Work with Lenders for the BRRRR Method (+ a Massive Open Secret to BRRRR Success!)

Expertise: Real Estate Deal Analysis & Advice, Real Estate News & Commentary, Real Estate Investing Basics
36 Articles Written
productive-habits

Consider this: You’re looking for a lender to do a BRRRR in your chosen market, and you find someone through the traditional way—referrals. But we have all gotten referrals by friends and family that turned out to be lousy. Why? Because most people like to help, so when you ask for a referral, your friend or family member wants to give you a name. They don’t know if the lender is competent, if they will be happy to work with an investor, if you have aligned goals, or if the lender is even good at their job! It’s a crapshoot—and a terrible way to build a team.

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That method doesn’t even really require the internet. If you can do it without using technology, then there is a better way to do it! I wonder what the chances are that there is a lender in the BiggerPockets community who knows how to do a BRRRR, works with investors, and lives in your area. The chances are HIGH! Also, finding people on BiggerPockets gives you advantages because you’ll know that both parties at least have an understanding of our culture here. The lender will know common themes about how investors on BiggerPockets talk and interact, as well as what common strategies they like to use. The "hive mind" on BiggerPockets can be a valuable tool in that it gives people aligned goals and common interests. This provides a huge head start when finding a lender; otherwise, you're just some rando emailing some rando lender. You have to potentially build the entire shared base of knowledge from the start.

Looking for the secret to creating wealth in real estate? The BRRRR method—or “buy, rehab, rent, refinance, repeat”—is our proven, easy-to-follow method to build your portfolio. When you buy a home, fix it up, improve its value, and then refinance, you’re borrowing against the value of the property at its highest. Done correctly, this allows you to recover more of—or sometimes all of—the money you invested in the property. Our guide to the BRRRR method explains each of the steps and outlines how to build wealth through real estate, one property at a time.

Use the BiggerPockets search function to find lenders active on the site in your area or at least to seek out people who have done multiple BRRRRs in your area so you can learn what lenders they use. Maybe this isn’t possible if you live in some remote suburb (or maybe out of the country), but for the vast majority of people on this site, this is possible, available, and seemingly underused. If you think about it, that’s crazy since connecting people is why this site exists. USE IT! In case I sound like a shill: BiggerPockets does not pay me to say this—I doubt they even read my articles actually [untrue, we read each and every word!—Editor]—so I write this without bias. It’s just good advice.

Don’t Use a Bank—Use a Broker From the Start

Do you want to buy four houses and then stop? If not, don’t go to a bank. Fannie/Freddie guidelines say that you can only have four loans per bank, so when you use a bank and then get four loans, you’re done. You now have to go find a new bank and build a new relationship from the ground up, which, after doing four loans with someone, is an expensive relationship to have to give up! Instead, set your long-term lending strategy up for success from the start and get a broker who can work with multiple banks. This at least gets you to 10 loans, and by then, you’ll have a lot more resources with which to deploy creative workarounds. The person at the big bank is really just a broker too, and they only sell loans from the host bank. Getting a broker opens your options up to lots of banks all at once—big advantage. Trust me on this one. I’m a banker by day, and we are the worst! 

Related: How to Take the BRRRR Strategy to the Next Level with a 198-Unit Apartment Building

Also, as I said earlier, make sure this broker knows how to do a BRRRR, make sure they work with investors, and ideally make sure they are on BiggerPockets or closely connected to someone who is. You want to get a lender who is in it for the long haul so you can grow together; you don’t want someone transactional. You need a person with direct experience doing what you’re trying to do, because while learning together is fun, what you really need is experience and someone who can propel you further.

Use the Delayed Finance Program

The BRRRR method is good, but using delayed financing along with it is better—far better. I’ve been reading the forums for years regarding this topic and the vast majority of people not only don’t know about this solution, but they miss an important massive open secret to BRRRR success. The delayed finance exception allows you to skip that pesky six-month minimum seasoning requirement. What you give up for this is the ability pull created equity out. It limits you to only finance what’s on the HUD (or 75%, whichever is lower), which is usually what you pay for the house, so most people assume you can only get back the capital for the house purchase, not the rehab.

This is not correct, and it’s a huge mistake.

When you buy the house, you can put the rehab, your insurance, and any other hard costs like this on the HUD. Then, when you refi, you can get the entirety of your capital out, and you can do this lightning fast. My last BRRRR took less than nine weeks from the time I closed on the house until the time I had 100 percent of my funds returned. The reason this is really valuable is that if you have a house that you buy for an all-in price of 75% of the ARV, you wouldn’t get any additional capital out anyway, so if you use this, you’ll have saved four months and sacrificed nothing. In fact, it’s actually longer than that because in most real world scenarios, you won’t even start the loan process until that six months is up, so add another month—now we are saving five months!

How did I learn this apparently secret and relatively unknown magic trick? My lender taught me. This is why finding the right broker is so important—they will teach you the nuance of debt strategy that you don’t know. If you get a lender who doesn’t know this stuff, it’s the blind leading the blind.

You don’t have to use delayed finance, but it allows you to get lightening quick turnarounds (my last was less than 9 weeks!), and you at least want the option to do this at some point. If you find a broker who doesn’t know how to accomplish this, you may be stuck without the possibility. Do not settle for a pigeonholed strategy. Find the lender with competence to help you grow in every way.

Get the Lender Involved Way in Advance

When we are new investors, there is a common tendency for us not to bother vendors until we are “ready.” We don’t want to waste anyone’s time, right? No one wants to call a contractor, real estate agent, lender, etc. six months before they are ready to buy something. I’m certainly guilty of this myself, but the mistake was bigger than I had originally realized.

Say you buy a BRRRR, and when the house is ready to refinance, the bank says you can’t for whatever reason. Well, now you’re on the reactive rather than the proactive, so you decide for the next deal that as soon as you get your offer accepted, you’ll talk to a lender. Let’s say he says all should be good. When the time comes, though, unless he did a full underwrite, he may notice something that will delay or hinder the refi. This isn’t speculative—this happens to investors all the time. Instead of waiting until last minute, I recommend going way early instead. In fact, just start now. The longer you have the relationship built, the more productive it’ll be. Plus, you never know what relationship will take you from learning to doing!

Related: Case Study: How I Made $40,000 on My Recent BRRRR Real Estate Investment

These days, when I file my tax returns, I call my lender and ask him to look them after the CPA gives them to me but before I sign them. I do this so my lender can see if my financial situation will allow me to implement the debt strategy I had envisioned for the year. A great lender is not a transactional part of the puzzle; they are your teammate. Get these people invested early and often into your success.

The importance of this—and everything I write about regarding building relationships—cannot be understated nor repeated enough. Find a lender that you can strategize with and make friends with, who has goals aligned with yours, and whom you can work with long-term. This will not happen with a few quick emails when you need to fund a deal in a hurry. If you want to buy a house any time in the next 12 months, I highly recommend searching for lenders who can help now.

Investors: Any questions when it comes to lenders and using the BRRRR strategy? How have you found success?

Weigh in below!

Alex has spent his career in sales and finance industries and now invests in rental real estate along with working in the underwriting department at a bank in Las Vegas. Alex is an expert in long-d...
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    Stephen Stokes Rental Property Investor from Austin, TX
    Replied about 2 years ago
    Maybe works in your market but getting 100% of the upfront capital back on any deal in my market is not likely possible. I recently completed BRRRR on a duplex and cannot recoup any of the upfront capital but did see a nice return on the rehab forced appreciation and rents are way over what the appraiser suggested. What is key to the strategy is getting an appraisal to come in high enough to pull capital and even though we know the value of the property in my example here is much higher, the appraisals lean on the conservative side due to past downturn issues where appraisers were partially at fault. Competition in my market is high.
    Alexander Felice Guy with Great Hair from Fayetteville, NC
    Replied about 2 years ago
    it’s not 100% of capital, it’s 75% LTV, very different. I just make sure to buy low enough that I can bring my total cost in at 75% so my capital outlay matches the funding guideline. Sure it doesn’t work in EVERY market, but nothing works in every market. This one works in a lot of markets though! As for appraisals, this is tricky for me as well. You’re right that appraisers want to be conservative, that just means I have to be very careful when I do the purchase. remember in real estate you don’t make money when you sell, YOU MAKE MONEY WHEN YOU BUY!
    Stephanie Cabral Rental Property Investor from Glastonbury, CT
    Replied about 2 years ago
    Hi Alex, great article! I am very interested to learn more about this and had a few questions, maybe others will benefit from the questions as well: 1. The delayed financing strategy requires the original purchase to be in cash (or some unrecorded vehicle, like a line of credit), correct? Specifically, would this work if I purchased the property using hard money and recorded the mortgage? 2. Second, this strategy only works if you put the renovations on the HUD, correct? 3. Can you recover the closing costs from both the original purchase and the refinance? 4. Lastly, the 75% that you refer to is 75% of the ARV, correct? So even though they’re limiting you to 100% of costs, the appraisal is still important to make sure the loan isn’t exceeding 75% of the ARV, correct?
    Sam Cherry
    Replied about 2 years ago
    Can’t wait to hear Alexander’s reply to Stephanie’s question!
    Alexander Felice Guy with Great Hair from Fayetteville, NC
    Replied about 2 years ago
    Stephanie happy to help 1. the original source doesn’t have to be CASH, but it has to be YOUR funds. Meaning you can use a HELOC or LOC, maybe borrow from an IRA or 401L. What it cannot be though is a loan from someone else. There are ways around this, but none legal enough for me to disclose here 😉 2. this strategy works BEST when you put the rehab on the HUD. If you don’t use this tactic you’ll be left refinancing out only the purchase price and leaving a whole lot of money in the unit. Not ideal. 3. closing costs must be paid by you. Sorry to deliver this bad news. HOWEVER, what I do is get my broker to trade points for rate. Meaning, my costs to close is very low and I pay a higher rate in exchange. While no one wants to pay higher rates, if I take a .75% higher rate I pay nothing out of pocket. Well that rate increase is only like $20/month on a $60K loan (estimates). So depending on the loan size this may be an option to get more of your capital back out 4. yes yes yes. the DF rule is 75% LTV of appraisal, OR 100% of HUD, whichever is LOWER. appraisal is always important when dealing with banks. if the appraisal comes in too low, you’re left stuck with money in the deal. estimating ARV and buying low are still CRITICAL in this method, as with any real estate purchase
    Stephanie Cabral Rental Property Investor from Glastonbury, CT
    Replied about 2 years ago
    Thanks! This is great information.
    Kim Surrency Rental Property Investor from Jacksonville, FL
    Replied about 2 years ago
    Yes, this is an incredibly helpful conversation. Thank you all for sharing your insights.
    Rob Massopust from Garden Grove, California
    Replied about 2 years ago
    Is that the HUD-1 on the original purchase or the HUD-1 on the refi. Do you have any lenders savvy in this for CA? I just did a rehab and finding it tough to get it refied
    Alexander Felice Guy with Great Hair from Fayetteville, NC
    Replied about 2 years ago
    this is the HUD on the original purchase. In fact I just closed on this unit a day before this article went live. rehab is going on as we speak. have you searched BP for lenders in CA??? lots of them on here I’m sure
    Dj Larsen Investor from Lafayette, Ca
    Replied about 2 years ago
    Alex – Appreciate the nudge in searching out great brokers in my area who are more than transactional. Heading up to search BP now.
    Alexander Felice Guy with Great Hair from Fayetteville, NC
    Replied about 2 years ago
    glad to hear it DJ! you know this article has driven a lot of people to reach out to me. Instead of searching BP it seems they all prefer to ask me if I know people all over the country LOL Please let me know if your search is fruitful. good luck dude!
    Jeffrey Bland from Fort Worth, TX
    Replied about 2 years ago
    I think I may have missed the concept of this idea. Please elaborate if you can. You’re just asking the title agent to put some numbers on the HUD?
    Alexander Felice Guy with Great Hair from Fayetteville, NC
    Replied about 2 years ago
    yes. It’s as simple as it sounds. make sure you have this strategy worked out with your lender FIRST so the HUD you give him lines up with loan requirements. Other than that, it’s as simple as just asking, and they will do it because why would they care? 😉
    Alexander Felice Guy with Great Hair from Fayetteville, NC
    Replied about 2 years ago
    also remember that when you put it on the HUD, you have to pay the total at the time of closing. the rehab and anything additional will go to escrow and disbursed as you tell them.
    Chris Nelson Rental Property Investor from Saint George, UT
    Replied about 2 years ago
    So by asking your title company to please include your “rehab and repairs” number, on Line #1303 of your HUD, you’re saying that the $10,000 will then be paid out directly by the title company to your rehab contractor (Season to Season Home Care LLC, in this case), correct? And then if the rehab turns out to be less than the $10K, you just get that reimbursed from the contractor back to you? This is pretty slick.
    Jesseme McVey Rental Property Investor from Chicago, Illinois
    Replied about 2 years ago
    This post could not have come at a greater time. I’m currently getting ready to close on a quick fix and flip property (cash). However, I always have a backup exit strategy which in this case is refinancing if the property doesn’t sell. 6 months to refinance was not ideal but now I know this exists…..priceless!
    Alexander Felice Guy with Great Hair from Fayetteville, NC
    Replied about 2 years ago
    glad to be of some help!
    John Murray from Portland, Oregon
    Replied about 2 years ago
    Great article! I have 9 rentals and have done BRRRR on 6 of the 9. Made just north of about $500K on the 6. The trick is to purchase at a 20-30% discount in a booming market. Right now I’m selling off my inventory 1 at a time. The train left for purchase about 2 years ago. I will BRRRR the remaining 3 and sell off 1 at time to avoid capital gains and keep recapture to a minimum (thanks GW Bush!). BRRRR is one of the great ways to invest, the caveat is it’s a lot of work. You must do this in a booming market and have about $500K in seed money and you are on your way providing you have the proper skill sets.
    Alexander Felice Guy with Great Hair from Fayetteville, NC
    Replied about 2 years ago
    John sounds like you’re killing it! It doesn’t have to be a booming market though, I do this in an old dumpy market with no growth and I started with only $3500, it can be done in lots of ways!
    Chris Nelson Rental Property Investor from Saint George, UT
    Replied about 2 years ago
    Alex, when you say that you’re doing this strategy in an old dumpy market, you’re not referring to Vegas, or are you?
    Alexander Felice Guy with Great Hair from Fayetteville, NC
    Replied about 2 years ago
    not at all. I’m not sure this would work in Vegas right now with as hot as the market is. you can’t buy cheap enough and you can’t rent it high enough. I love las vegas, but don’t invest here 😉
    Ben Naughton Rental Property Investor from Cape Coral, FL
    Replied about 2 years ago
    Maybe Im missing something here, but the lenders I’ve talked to have said for Delayed Financing I can get 75% of either the ARV or the sales price (whats on the HUD plus rehab, etc), whichever is lower…. That still only leaves me with 75% of my investment recouped. Is this article saying I can get 100% financing for whats stated on the HUD (including rehab if I put in on there).
    Alexander Felice Guy with Great Hair from Fayetteville, NC
    Replied about 2 years ago
    I am saying you can get 100% of your funds, including rehab, out of the refi you need your all-in costs to total 75% of the ARV. then you finance 75% ARV and 100% of your total costs. I am not saying or claiming there is 100% LTV loans or lenders, but it is possible to finance 100% of your capital out. The key here is to buy distressed and CREATE some value, if you rehab a house and your total all-in cost is equal to ARV, you’ve grossly overpaid. buy cheap!
    David Jason from Alexandria, Virginia
    Replied about 2 years ago
    Wish I had this 6 months ago. My broker is not a REI so the knowledge is not strategic, but he knows the requirements. Called him last week to ReFi at 75% ARV to cash out the investment, looks like I’ll be leaving lots of cash in unless I execute a 2nd HELOC draw and wait a year to consolidate. One question, how does High Balance of Jumbo guidelines play into this? Thanks for the learning.
    Michael Tran Developer from San Diego
    Replied 3 months ago
    Hello David, Were you able to find any more information about jumbo loan BRRR?
    Alexander Felice Guy with Great Hair from Fayetteville, NC
    Replied about 2 years ago
    Sorry david, unsure about jumbo loans specifically.
    Mellisa Otwell Appraisal Trainee from Olympia, Washington
    Replied about 2 years ago
    You said Fannie Fannie/Freddie guidelines say that you can only have four loans per bank, so when you use a bank and then get four loans, you’re done. I thought it was 4 mortgages regardless to the bank affiliation.
    Alexander Felice Guy with Great Hair from Fayetteville, NC
    Replied about 2 years ago
    Nope, 10 total. Get to buying!
    Igor Zabrodin Real Estate Investor from North Wales, Pennsylvania
    Replied about 2 years ago
    Hi Alex, thanks for writing about this topic and for providing a very useful example. I feel like in your example ($50K purchase price and $11K of rehab costs and soft costs), having the $11K figure as settlement charges isn’t really “fishy” or unreasonable for anyone to balk at. In contrast, the last 2 BRRRs that we did in our area cost us about $120K purchase price and around $50K-$60K for rehab costs and soft costs combined. Do you think having $50K/$60K as “settlement charges” would be a bit fishy? We happened to be all in between 55% and 75% of the ARV in these 2 cases. Do you suppose we would have been able to follow your model with these numbers? Thanks!
    Alexander Felice Guy with Great Hair from Fayetteville, NC
    Replied about 2 years ago
    I used this example because I had just signed the HUD the day I was doing this article. The amount is irrelevant. I have done it with 30-40K as well. It’s not ‘fishy’ at all anyway, it’s not against any rules and it’s not even frowned upon. The title company doesn’t care what you pay, the seller doesn’t care if you add costs either, who cares? the bank doesn’t care either, and fannie/Freddie is who designed the program. It says ‘settlement charges’ but it also lists the vendor underneath and anyone can see it’s for rehab. If you’re not doing anything illegal or with ill-intent, then you have nothing to worry about. As for LTV, if your all-in costs come in far below 75% then using delayed finance may not be ideal. For instance if your all in is 55% and you use delayed finance you’re going to leave 20% of capital in the deal (75% or 100% of hud whichever is LOWER). so in those circumstances it may be better to wait the 6 months. Just depends on how much cash it is for you.
    Lee Liberman Investor from Baltimore, MD
    Replied about 2 years ago
    I just wanted to clarify where the money goes related to the rehab at settlement. Say you purchase a house for 50k and put 60k into it. You are listing the 60k on the hud1 to go to contractor. Does the contractor get that as one lump sum or does the title company issue that money out from escrow as you say to release it (likely per draw schedule of rehab agreement with contractor). I want to make sure the contractor still follows a draw schedule in using this method. Any idea if the title company charges a fee for each draw? Thanks.
    Alexander Felice Guy with Great Hair from Fayetteville, NC
    Replied about 2 years ago
    I always do it as one lump sum these days, but any title company should be able to set up disbursements quite easily. I was never charged extra. I do not believe they will be able to build in abstract construction goals as disbursement events though. Likely you’ll just have to include a schedule. That said, everything is about people and relationships, if you need that solution, someone at title will help you build it, just make friends 😉
    Arden Ballard from Madisonville, LA
    Replied over 1 year ago
    I know this is a year old, but it seems to me that you’d want a separate contract lined up for your contractor describing the transaction to hold them accountable. Or maybe you can set up a holdings LLC and disperse the money yourself? I don’t know if that’s illegal or not–just thinking off the top of my head. This is gold! Thanks for all the info!
    Jon Miller Investor from Chesapeake, VA
    Replied about 2 years ago
    I’m very excited about this article, thank you!! I’ve been looking for a better way to buy rentals and this sounds like the way. Thank you again!
    Mario Dimacias Flipper from Napa, CA
    Replied about 2 years ago
    Alexander, thanks for the Article!
    Keong Kam from San Jose, CA
    Replied about 2 years ago
    Great article! And a quick question: What happens if you 1. change contractor for some reason? HUD1 says $xxxxx to vendor 1. And I end up going with Vendor 2. 2. if you end up spending less than what’s oh HUD1? Do you have to modify HUD1?
    Alexander Felice Guy with Great Hair from Fayetteville, NC
    Replied about 2 years ago
    great questions. Once the HUD is signed, the contractor should go to work the next day. I would be confident with who I wanted to hire before I closed. Don’t buy a house THEN figure out how to rehab it, that opens the door for a lot of problems and a big waste of time. You have to spend what’s on the HUD, if your contractor gives you a refund after the fact, that’s really not how it’s supposed to work as it could be considered fraudulent, but it’s unlikely anyone would care. Once the HUD is signed and recorded, there is no modification possible.
    Ezichi Oha Wholesaler from North Hollywood, California
    Replied about 2 years ago
    I enjoyed reading every bit of this article. Do you have to go to that state to speak to your lender or is everything done over the phone?
    Ray Thorsen Investor from Waterford, WI
    Replied about 2 years ago
    This is a great article I am going to try this with my next purchase if it gets accepted. A couple more questions. Before reading this and knowing a little about it I was going to offer say 20k more and ask a credit of 20k. But your method seems like it would be separate from the purchase price. This may be cleaner for the seller since they would be not involved. Also If I did some of the work myself could I take the withdrawal from escrow or does it have to all be to third party contractors?
    Noble Willis Investor from Nashville, TN
    Replied 8 months ago
    20k would make commission 1200 higher, making the seller lose that.
    Eudes De leon
    Replied about 2 years ago
    Very good article thank you for sharing the information
    Cindy Chan Rental Property Investor from San Diego, CA
    Replied over 1 year ago
    Thanks for this great article Alex! I just listened to your podcast on BO as well. I’m trying to get crystal clear on the delayed financing exception process as we’ve never heard of it or using HUD before. So apologies in advance for the stupid questions! First, what do you mean by putting the property on the HUD? Is this something that you have to do in addition to the regular closing process? Is there a specific category or department within HUD that you need to go to? Does using this exception mean that you have absolutely zero seasoning time required? Are there only specific lenders that work with this exception or can any lender or type of lender? Thanks!
    Cindy Chan Rental Property Investor from San Diego, CA
    Replied over 1 year ago
    *BP not BO 😛
    Dickie Taylor
    Replied about 1 year ago
    Do you get the mortgages as a corporation or LLC or as yourself?
    Tim Bradley Rental Property Investor from Orlando, FL
    Replied about 1 year ago
    The delayed financing seems to get way less talk then it deserves. I'm really glad this article found its way to the blog page again. I am about to start my first ever BRRRR but will for sure be utilizing delayed financing for my next one. While its great that you can get your money back, 6 months is a long time to wait if you are trying to ramp up and do multiple deals in a year. Somewhere on this thread it was mentioned that you had to show you have the money to buy the property cash. Can you combine this with hard money for the cash purchase or do you actually have to have the money in your account and then show that money has been seasoned and not a loan?
    Marlina Eckel Rental Property Investor from Cotati, CA
    Replied 9 months ago
    I am trying to figure out delayed financing and how it plays out. Since HUD forms are no longer used, except for reverse mortgages, how is this drafted now? Thank you for any information shared!
    Alexander Felice Guy with Great Hair from Fayetteville, NC
    Replied 8 months ago
    The HUD-1 is just the settlement statement. Still pretty standard, it's the form the title company will use to show how all the funds are paid and disbursed.
    Josh Norell Flipper/Rehabber from Colorado
    Replied 8 months ago
    Just last week, I closed on a property in Florida, and the title company said they do not provide HUD-1's any more. They only use ALTA statements now-a-days. They did not have any issue adding insurance and rehab costs to the ALTA settlement statement though.
    Denver J Lobo Rental Property Investor from Atlanta, GA
    Replied 26 days ago
    Josh - How do you know your rehab cost before doing it? Is it an estimate? If so, why wouldn't you estimate a significantly higher amount?
    Shekeira Ward Attorney from Austin, TX
    Replied 5 months ago
    Yes ALTA and HUD are almost interchangeable now.