For those focused on BRRRR...

Lake Elsinore, CA · Member since 2018 · 235 posts · 300 votes

Can you talk about in what condition you are buying properties, and how are you buying them?

I really want to go down this road for my next investment but it seems a lot of the properties I see that would be "BRRRR-able" are cash purchases.

Are you buying properties so distressed they are cash purchases? In order to get your money out, assuming you have your financing fixed, it seems there needs to be a big upside. I'd love to say I have enough cash to buy more houses in cash, but I don't.

Would love thoughts/feedback on what you look for if BRRRR is your focus.

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Mike Dorneman

Rental Property Investor · Drums, PA · Member since 2017 · 345 posts · 365 votes

@Courtney M. I’ve got 3 young daughters and I try to involve them as much as I can in our real estate business. Here’s why I’m telling you this. When I go to view properties I often bring the kids. They’ve gotten to the point that when we walk into a perspective property and It’s disgusting and stinks, I asl them what they think. Their response, “Smells like money Dad!!” So, I’ve found success with making cash offers on homes that primarily require cosmetic fixes. I’m buying these anywhere from 20-50% below market value. We renovate, rent and refi our cash back out usually within 6 weeks. Find the next property, and do it all over again. We started about 1.5 years ago and we’re (my wife and I) currently working on #11. Let me know if you have any questions regarding the specifics of BRRRing Best of luck!!

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Calvin Lipscomb
Brooklyn, NY · Member since 2016 · 316 posts · 130 votes
7y
Originally posted by @Courtney M.:

@Mike Dorneman
That sounds like a fantastic process. The markets I'm looking in probably would require $40k - $60k to buy a distressed property with cash. I'm just curious as to your average house price using your strategy.
"average house price" as you noted is dependent on location. If you have a great finance team in place people have made cash offers but, went to closing with a mortgage in hand. Also, some finance solution services will allow you to close with cash and then allow you to do a cash refi with the financing for the needed rehab costs.
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Caleb Jordan
Lender · Arlington, TX · Member since 2018 · 465 posts · 184 votes
7y
@Jeremy England I like your break down.
But you said "These two examples are based on a 30 year term, and many hard lenders may only offer shorter times, so that number could be much higher."
please elaborate what you mean.
All HML flip loans I know of have interest only payments. So the length of the loan should really make no difference in monthly payment amount with a HML, whereas if you are paying down principle the length has a huge affect.
In above example it seems a hard money loan for 100k at 14% interest should be about 1166 month in an interest only payment
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Joseph Lopez
Investor · Member since 2018 · 32 posts · 59 votes
7y
Hi @Courtney M. I've purchased properties that are all cash or hard-money purchases. I have found that if the property qualifies for financing then another investor or regular buyer will pay more than I will. (although that's not always the case because sometimes seller(s) are looking for speed in closing and less red tape rather than full price). Many of the past 12 purchases have been homes that I had to purchase cash or cash & hard money combo, then I went ahead and fixed them up to rent or flip. If I chose to rent and I wanted my money back then I'm looking for a hard money lender or a private money lender. Since I have made a few investors tons of cash, I go to those established relationships first and get zero points, zero fee short term loans paying back 11% interest only and get 100% of my money back and do it all again while the property is being rehabbed and rented out. If I didnt have these contacts I go direct to hard money lender and I'm not paying so much attention to the low rates as I am in establishing relationships. I've seen investors goto a institutional or hard money lender and get a 5-8% interest rate and 2 points with $800 fees and think this is a good deal. That will work for most, but I have established relationships with hard money lenders that charge 11-18% with up to $1,000 in fees but they lend me 75% of ARV and they do not ask for fund control (I HATE fund control, I never understood the ability for a bank to charge me to watch over my money and I have to ask permission to get my money back?).....but the most important reason the right hard money lender is important is because I walk in my payments once a month, say hello to the entire staff, and then ask to speak to the owner, president or broker of the company ask ask "hey do you have any deals you are foreclosing on in the next couple of weeks or months that I can reach out to ?" I've gotten so many deals in which I reached out to the person losing their home and the existing hard money lender let me assume the deal.
So to summarize, relationships are very important and team up with someone to be able to access more properties. There are a lot of investors with money to invest with someone that brings them a deal that makes sense. Hope this helps!
16 Reply
Andrew Angerer
Rental Property Investor · Dayton, OH · Member since 2018 · 234 posts · 183 votes
7y
@Caleb Jordan
My example may not have been perfect, but I believe my argument is sound. Hard money lenders will sometimes can cost you more than other types of loans. If the added cost of your payments to your loan changes the numbers too much in your investment into it, that you do not follow the 70% rule anymore, maybe seek another deal that you can afford.
However there are many good deals you can make with the additional costs of HML just make sure that the the numbers add up in your favor.
1 Reply
Uneeq Khan
Bound Brook, NJ · Member since 2018 · 171 posts · 37 votes
7y
@Andrew Angerer thanks for the explanation.
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Caleb Jordan
Lender · Arlington, TX · Member since 2018 · 465 posts · 184 votes
7y
Originally posted by @Andrew Angerer:

@Caleb Jordan
My example may not have been perfect, but I believe my argument is sound. Hard money lenders will sometimes can cost you more than other types of loans. If the added cost of your payments to your loan changes the numbers too much in your investment into it, that you do not follow the 70% rule anymore, maybe seek another deal that you can afford.
However there are many good deals you can make with the additional costs of HML just make sure that the the numbers add up in your favor.
Yes, you are absolutely right HML will be more expensive than other funding.
1 Reply
Hunter L.
Investor · McLean, VA · Member since 2013 · 53 posts · 18 votes
7y
@Courtney M. I'm in the middle of my first BRRR right now and we used private money. We had the money lined up and ready to go for when we found a deal, so all we needed to do was call our lender and have him wire the cash once we found the deal. There were multiple offers and the property went within days, so having cash, a quick close and no contingencies most likely helped.
3 Reply
Victor S.
WorldWide · Member since 2016 · 1k+ posts · 1k+ votes
7y
Originally posted by @Mike Dorneman:
Bank loans on 80% ARV (after renovation value). I cashout at 52k. I recoup my original 40 so I can do it again, make a quick 12k, and now have a loan for about $370/month. The house rents for $875/month, so after expenses (including $150/mo cap ex), I also cash flow about $150/month.
How often do lenders go for 80% LTV on an investment property (BRRRR) with decent rates? Isn't 70-75% more common?
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Rowell Rodriguez
Flipper/Rehabber · CA · Member since 2018 · 22 posts · 3 votes
7y
@Mike Dorneman Just curious, what was the ARV/comps for that property?
0 Reply
Andrew Angerer
Rental Property Investor · Dayton, OH · Member since 2018 · 234 posts · 183 votes
7y
@Amy Roberts (mobile site had issues )
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Michael Kiley
Real Estate Agent · Cleveland, OH · Member since 2017 · 184 posts · 253 votes
7y
I use my HELOC to buy distressed houses on the MLS. They are usually bank owned. My target is to be all in around 65k with an ARV of 100k. The last one I paid 15k. The smaller the house, the better. I also favor houses that are so nasty and foul that no sane person even gets past the front door- eliminates much of the competition. Like @Mike Dorneman, I too have used the line "Smells like money!" Haha. But really, I like to put a couple drops of essential oil inside a dust mask to deal with the stench. There's nothing like creating your own destiny doing meaningful work.
22 Reply
Jay Guinn
Real Estate Agent · Austin, TX · Member since 2018 · 1 post · 0 votes
7y
@Mike Dorneman Hey Mike do you have a sample letter that you send to these potential sellers? Something you could share?
0 Reply
Jared Smith
Rental Property Investor · UT · Member since 2018 · 80 posts · 14 votes
7y
@Mike Dorneman Why do you not just start out with a loan from the bank/lender from the start instead of refinancing it later? I am new to this and still do not understand the benefit of the refinancing part of it. Thanks! :)
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Justin Peery
Emigrant, MT · Member since 2018 · 1 post · 2 votes
7y
Michael Kiley
"There's nothing like creating your own destiny doing meaningful work."
I'm a carpenter in Bozeman MT and I must say that I couldn't agree more! Looks great by the way!!!
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Mike Dorneman
Rental Property Investor · Drums, PA · Member since 2017 · 345 posts · 365 votes
7y
@Jared Smith Hi Jared- buying with cash allows for much more leverage. Most often we are buying homes in distress.l, which is how we can negotiate and get deals from 20-50% under market. Often, sellers are willing to take a lower offer if you can close quickly. Additionally, this is how you recoup all your costs.
2 Reply
Mike Dorneman
Rental Property Investor · Drums, PA · Member since 2017 · 345 posts · 365 votes
7y
@Rowell Rodriguez ARV’s for properties that I’m all I’m at 30k are typically mid 50’s. The Reno’s usually take about 3-4 weeks.
0 Reply
Mike Dorneman
Rental Property Investor · Drums, PA · Member since 2017 · 345 posts · 365 votes
7y
@Victor S. Depends on the lender. I’m using a small local bank that does 80%.
1 Reply
Joseph M.
Flipper/Rehabber · Los Angeles, CA · Member since 2009 · 1k+ posts · 732 votes
7y
@Mike Dorneman You are generally spending $10k per property for rehab ? Did it take you a long time to find a lender that would allow a cash out with no seasoning ? Also do they only lend in PA? Sounds like you have a great strategy going
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Uneeq Khan
Bound Brook, NJ · Member since 2018 · 171 posts · 37 votes
7y
When going with a HML, do you get a loan for the down payment + rehab amount and use it to get a conventional loan, basically having two loans simultaneously then refinance both loans into one? Or do you just get a loan for the full purchase price + rehab And then refinance that? And if doing conventional only, you put 20% down, get a loan for rehab amount, and then refinance both into one? On the BRRRR calculator, not sure if I'm doing it right, but it seems it calculates based on original loan amount, not the later refinance amount. The monthly P&I will be different for the original loan and refinance loan. Holding cost is based on original loan and monthly payment after rental is based on refinance loan. Am I doing something wrong?
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Todd Jenkins
Staten Island, NY · Member since 2017 · 4 posts · 8 votes
7y
The way I understand it is that you get a hard money loan for the purchase plus rehab all in one. Use that to buy and fix the property. Get it rented out and then take that property to a bank and get it refinanced on the new appraised value and use that loan to pay off the hard money lender
8 Reply
Courtney M.
OP
Lake Elsinore, CA · Member since 2018 · 235 posts · 300 votes
7y
@Michael Kiley I have been looking at some bank owned properties. What is the process in working with the bank? I'm sure it varies per bank. Does it typically take long to close?
0 Reply
Mike Miranda
Member since 2018 · 2 posts · 5 votes
7y
Jared,
The Bank isint generally going to want to loan you money a house that is in need of repair. This is why we you private financing at a higher rate. Take a short term so for invested to make his piece you have to pay the bigger interest.
0 Reply
Stacey Lauren
Member since 2018 · 11 posts · 4 votes
7y
@Mike Dorneman hi Mike! Is It possible to do brrr without renovation?
0 Reply
Mindy JensenPro Member
BiggerPockets Money Podcast Host · Longmont, CO · Member since 2014 · 7k+ posts · 10k+ votes
7y
@Courtney M. , listen to episode 301 of the BiggerPockets Podcast. Alex Felice goes into detail about his usage of the BRRRR method. www.biggerpockets.com/show301
[email protected]Podcast Guest on Show #261
17 Reply
Michael Kiley
Real Estate Agent · Cleveland, OH · Member since 2017 · 184 posts · 253 votes
7y
@Courtney M. Dealing with a bank is just like dealing with any other seller except they are professional sellers and offers will be submitted with their purchase agreements and addendum- very one sided agreement nonetheless. You need to accept all their terms or they move on to the next offer. If you get a great deal, who cares. Bank owned is a great source for distressed property. I find many times they are priced to move so you need to act quickly...which is why cash works well in this circumstance and many of these homes are uninsurable so you couldn't get financed anyway. Hope that makes sense. Best of luck!
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