Investor · TX · Member since 2022 · 27 posts · 5 votes
Looking for advice for my first single family BRRRR purchase strategy.
I am a Education specialist and wife is a nurse.. we have both had to work hard through COVID pandemic.. but blessed to have had a job with good steady income!
We live in Midlothian, TX. It is about 20/30mins from Mansfield/Arlington,TX and 30 mins. from Dallas. My goal is buy a home using a HELOC, not a cash out refi. because my rate is super low already.
The HELOC gives me access to 60k, and if needed I may use a hard money lender to purchase the home. I want to do a short-term rental using the BRRRR to cashflow, with good ROI.
1. What is your advice on using a HELOC and Hard money lender to BRRRR my first property? 2. Should we find a contractors to assist with repair cost?
3. Are there any real estate agents who have completed BRRRR deals?
Developer · San Antonio, TX · Member since 2019 · 176 posts · 81 votes
4y
You need to keep in mind that HMLs will only disburse funds on completed work. They wont just give you money if you ask. They will send out inspectors to look at your project, verify that the work has been done then disburse the funds. Rates are usually around 10-12%, 2-3 points for first timers.
As for contractor that would depend on how much time you have. If you have time to manage trades yourself, you can but contractors can save you that time.
Yes, hard money will 100% pull your credit to lend to you, they will require a personal guarantee if this is your first time.
You can use HM to purchase the property and HELOC to pay the downpayment and kick start the construction and make draws to pay it back or use your HELOC entirely if rates are lower then use HML to finish up. Then pay them both off when you refinance. Many ways to go about it.
Rental Property Investor · Melbourne, FL · Member since 2011 · 3k+ posts · 2k+ votes
4y
When you draw from the HELOC it functions similar to a credit card, so the trap can be that you pull a lot from the HELOC and your debt to income ratio is skewed, which makes it difficult to refinance out.
As far as the contractor question, I will answer that it depends on what you are doing. I have used local flooring shops to replace flooring, also have used big box stores...have also used local tile installer guy. Big, Medium, Small installer. I don't need a contractor for this. Where I do need a contractor is for structural things, such as moving or replacing with bigger sized windows, moving doors, taking down interior walls. Plumbers do the plumbing, electricians do the electrical, etc. I can call the subs myself and do the projects one at a time, but the more complex the job is, well, you might want to have a contractor to oversee the project. Additionally, they pull permits for the bigger things and the locality sends out an inspector to ensure the project was done to code.
Third question, agents do renovations all the time.
Investor · TX · Member since 2022 · 27 posts · 5 votes
4y
@Kerry Baird thanks for your feedback! Gave me a lot to think about. What if I used the hard money lenders funds to pay the HELOC down to reduce my debt to income. Do Hard money lenders usually report to credit, or would it affect debt to income when refinancing?
Rental Property Investor · Melbourne, FL · Member since 2011 · 3k+ posts · 2k+ votes
4y
@Christopher Whitten, when I have used hard money, it went something like this: Up front, I am pretty sure they pulled credit...but it has been awhile. I needed to show bank statements to show I had reserves so the lender knows I can make payments and start on the renovations. I close in the name of an entity, often within 10 days or so. The lender confirmed value and would give me a percentage of the ARV. The lender I used would offer me a lower amount on the first deal and increase the amount they'd lend on further deals.
My hard money rates have been 10% interest and 2 points up front, and was due in a year, so I had to do the renovation, and have the house refinanced or sold in a year. I have had the contractor do work, and I pay him directly. Then I request draws from the hard money lender. They confirm the work is done, sometimes sending someone over to check that windows are in if I said windows are in.
Each one is a little different, but that is the general way that it went for us last time I bought a heavy fixer. Photos of my houses are in my bio...take a look. I've done a lot of houses, but spread over a lot of time. :D
The last couple of houses I bought near the beach in Florida, the previous owner carried the mortgage back for me for three years. I make payments directly to the seller, and I made a down payment in the beginning. I got insurance with them as the loss payee (protects their position if there is damage to the house). But very little in closing costs, no credit pull, and we just figured out price and terms between us. I pay 6% interest only. I'm just now coming to the last month of the 3 years and am refinancing out into a longer term note. My sellers will get their money back, and one of them said he will look for another house to sell to me.
Developer · San Antonio, TX · Member since 2019 · 176 posts · 81 votes
4y
You need to keep in mind that HMLs will only disburse funds on completed work. They wont just give you money if you ask. They will send out inspectors to look at your project, verify that the work has been done then disburse the funds. Rates are usually around 10-12%, 2-3 points for first timers.
As for contractor that would depend on how much time you have. If you have time to manage trades yourself, you can but contractors can save you that time.
Yes, hard money will 100% pull your credit to lend to you, they will require a personal guarantee if this is your first time.
You can use HM to purchase the property and HELOC to pay the downpayment and kick start the construction and make draws to pay it back or use your HELOC entirely if rates are lower then use HML to finish up. Then pay them both off when you refinance. Many ways to go about it.
Insurance Agent · DFW, TX · Member since 2021 · 348 posts · 245 votes
4y
@Andrew Postell is the perfect person to answer all of your questions and more. He is a lender specializing in investment properties but also, walks the walk himself as a BRRRR investor.
Investor · TX · Member since 2022 · 27 posts · 5 votes
4y
@Cameron Moore
Wow, thanks for the information! I will follow up on this. Also, I noticed you are a property manager also. Would be great to learn more about your background in PM as I begin to put all the pieces together as I begin to BRRRR.
Investor · TX · Member since 2022 · 27 posts · 5 votes
4y
@Naz Hossain
Good solid information! Thank you. I will be looking for deals in the DFW area where I live, and other locations of Texas later on. This was very helpful, concise information that helps me think through my next steps better.
Rental Property Investor · Melbourne, FL · Member since 2011 · 3k+ posts · 2k+ votes
4y
@Christopher Whitten, I still have houses in San Angelo, and bought (later sold) duplex units outside Ft Worth. I liked renting to Air Force at the base there, because I could see what rents they pay the military, and then I could figure what price at which I could buy a nice house.
Rental Property Investor · Melbourne, FL · Member since 2011 · 3k+ posts · 2k+ votes
4y
@Christopher Whitten, I contacted Bawld Guy from his posts here on BP. We were stationed in England at the time, and I hadn't figured out how to buy at a distance. Bawld Guy has connections with the builder and had a property manager, title company and lender all as his resources. So it was one stop shopping for us. The property was a newer build and turn key, and best of all, we could get documents notarized on base and we were off and running. I have photos in my bio.