100% equity, but no cash for rehab.

New to Real Estate · Austin · Member since 2022 · 1 post · 2 votes

Hello, I have 100% equity in my first BRRR investment property, but not enough cash for a rehab to reach comps. I currently have no income, but an excellent score. I am struggling to decide the best path/strategy to acquire a loan for more rehab cash. HM lender/Heloc/dscr/etc.

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Jacob St. MartinPro Member

Investor · Charlottesville Virginia · Member since 2021 · 348 posts · 346 votes

Hello Andrew, when you say you have 100% equity I am assuming that you mean that you have bought this house with cash but do not have any cash left to do the rehab. Hopefully you have run the numbers and are confident that after doing the rehab you will be able to pull out all of the money that you spent on the rehab + some holding costs. If this is the case then you are actually in a good spot because there are a lot of options. You could get a hard money loan for the rehab and then pay off that loan for the refinance, if it is light rehab work you could try to finance the rehab through credit cards that have 0% interest for the first year, you could try to tap into the equity from another property through a heloc or cash out refi, etc. I am not sure that a lender is going to want to do a heloc on the house before it is renovated because they want collateral that they could easily sell if you default

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Jacob St. MartinPro Member
Investor · Charlottesville Virginia · Member since 2021 · 348 posts · 346 votes
3y
Hello Andrew, when you say you have 100% equity I am assuming that you mean that you have bought this house with cash but do not have any cash left to do the rehab. Hopefully you have run the numbers and are confident that after doing the rehab you will be able to pull out all of the money that you spent on the rehab + some holding costs. If this is the case then you are actually in a good spot because there are a lot of options. You could get a hard money loan for the rehab and then pay off that loan for the refinance, if it is light rehab work you could try to finance the rehab through credit cards that have 0% interest for the first year, you could try to tap into the equity from another property through a heloc or cash out refi, etc. I am not sure that a lender is going to want to do a heloc on the house before it is renovated because they want collateral that they could easily sell if you default
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Joe VilleneuvePro Member
Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
3y
Get a lone against that equity. It's wasting away. It should be worth at least 5 times what it's worth to you in one property. If you paid all cash for this property you paid full price for it. You maximized your cost. Your equity represents "frozen" cash, that grows at least 5 times slower than if it wasn't frozen (liquid)...so melt it, and use it on more than one property (and rehab).
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Eliott Elias
Investor · Austin, TX · Member since 2021 · 9k+ posts · 5k+ votes
3y
Hard money will be able to loan you the rehab without putting a down payment. They will be 1st position on the property. Can connect you
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Nathan GesnerBusiness Member
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Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
3y
Read a few books on real estate investing to learn the power of leverage. I like the Unofficial Guide to Real Estate Investing. Here's a very basic explanation to get your juices flowing:

Assume a house costs $200,000 and rents for $1,500. The market appreciates 3% per year.

Pay cash for one house and rent it for $1,500. After five years you'll have earned $90,000 in rent income and gained $34,000 in appreciation.

Buy four houses with $50,000 down on each. Mortgage payment is $1,000 on each house, so you're essentially earning $500 per house or $2,000 a month. After five years you'll have earned $120,000 in rent income and gained $136,000 in appreciation. You've earned $132,000 more by splitting your money and leveraging it.
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Omar Ruiz
Investor · Anaheim, CA · Member since 2014 · 242 posts · 81 votes
3y
All the funding options you mentioned are good to investigate. The trick it to get the cheapest money. I would call as many lender contacts as you know and can find to get feedback on what they can do for your situation. Not having income may be a barrier with some lenders. Other lenders will likely require an interest reserves fund while you complete the rehab, especially since it's your first BRRR investment and you have no income. Write up a good 1 page (succinctly and to the point) business plan for lenders to quickly review and decide.
When I started investing in 2010, our first HM lender we assumed would do our first deal was reluctant and backed out. We panicked, but it was a blessing in disguise. I dug up all the business cards from networking events and searched the internet and called every HM lender I could find. After talking to numerous lenders, I eventually discovered one in Carlsbad CA that said he had a lady doing deals in Palmdale with the same numbers I was underwriting. He was happy to do the deal and it went smooth. He also did the following 3 deals and my first commercial multifamily deal and helped get my investing career in high gear.
The point of the matter is pick up the phone and call as many lenders as possible until you find the right one.
To Your Success!
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