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