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.
Rental Property Investor · Drums, PA · Member since 2017 · 345 posts · 365 votes
7y
@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!!
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
It wasn't my breakdown but i know what he is talking about. He is talking about the amortization. If a loan is amortized at 30 years, the loan payment will be lower. Even though the term of the loan may only be 1,3 or 5 years, the payments are basing it on a 30 years payback schedule.
He is saying some hml only amortize based on shorter periods, meaning your payments are more
@Ernesto Hernandez Many banks don’t require you to “season” the loan. So we buy in cash and refinwith cash, then just refi it back out. If I waited u til each BRRRR was completed and then started the refi process, I’d only be able to do 3 or 4 deals per year...
Are you talking about a commercial loan with 20 yr terms? I have researched this to death looking for a way to get my cash out of my current project and can't get past the seasoning req.
The only option I see available is a commercial loan which is amortized based on 20 year term, meaning payment is higher and cashflow is impacted.
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
It wasn't my breakdown but i know what he is talking about. He is talking about the amortization. If a loan is amortized at 30 years, the loan payment will be lower. Even though the term of the loan may only be 1,3 or 5 years, the payments are basing it on a 30 years payback schedule.
He is saying some hml only amortize based on shorter periods, meaning your payments are more
I attributed the quote to the wrong person, my bad. I am not sure how I managed to do that, lol.
The HML flip loans I am aware of are interest only. so it seems in a HML the length of term should not make a difference in the monhly payment, because there is no principle pay down right?
Now if there is a HML where there is a pay down of principle then the monthly payment changes for various terms.
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
It wasn't my breakdown but i know what he is talking about. He is talking about the amortization. If a loan is amortized at 30 years, the loan payment will be lower. Even though the term of the loan may only be 1,3 or 5 years, the payments are basing it on a 30 years payback schedule.
He is saying some hml only amortize based on shorter periods, meaning your payments are more
I attributed the quote to the wrong person, my bad. I am not sure how I managed to do that, lol.
The HML flip loans I am aware of are interest only. so it seems in a HML the length of term should not make a difference in the monhly payment, because there is no principle pay down right?
Now if there is a HML where there is a pay down of principle then the monthly payment changes for various terms.
yes, but i think hml is being used as a general term. There are numerous lenders out there that do not consider themselves hml and who do expect principle plus interest payments
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
It wasn't my breakdown but i know what he is talking about. He is talking about the amortization. If a loan is amortized at 30 years, the loan payment will be lower. Even though the term of the loan may only be 1,3 or 5 years, the payments are basing it on a 30 years payback schedule.
He is saying some hml only amortize based on shorter periods, meaning your payments are more
I attributed the quote to the wrong person, my bad. I am not sure how I managed to do that, lol.
The HML flip loans I am aware of are interest only. so it seems in a HML the length of term should not make a difference in the monhly payment, because there is no principle pay down right?
Now if there is a HML where there is a pay down of principle then the monthly payment changes for various terms.
yes, but i think hml is being used as a general term. There are numerous lenders out there that do not consider themselves hml and who do expect principle plus interest payments
Ok that makes sense, if that is the case I understand it then.
Rental Property Investor · Drums, PA · Member since 2017 · 345 posts · 365 votes
7y
@Jeremy England Yes, I do everything on 20 yr commercial loans. I’m still cash flowing between $200-400 per door and I like knowing I’ll have all these free and clear if I want to when I’m in my early 50’s. 😁
so there really is no true "no money down" BRRRR. Besides inspection and appraisal, you got to have money available to make payments to HML during rehabs.
"No money down" BRRRR is an overall strategy. The skinny, you find a property total cost acquisition, renovation, and holding comes to $200k and then you cash out refinance at $300K. With 25% down ($75K) you are left with $225k. You will use $200k to pay off all loans and you can walk away with $25k in your pocket. Is it always done? No. Can it be done? Yes. Utilizing the BRRRR strategy you do have a "no money down" opportunity. I am currently doing a 6 family BRRRR and I might have a no money down situation when all is done (rehab and rented out) by May 2019. It all depends on the ARV at appraisal time next year by the bank.
@Julia Gray I did my first deal and froze for about 4 months. 😁 Then I learned about BRRR, got my
Money back and started the process.
The girls know that the worse the smell, the more money we make!!!
For example, we bought a nasty house with bed bugs for 11k. Had it professional treated and cleaned. Did some
Minor cosmetic updates and that now rents for $850/mo. We put 4K into the Reno.
So all in about around 15k, great cash flow, and refied it at 41k.
11k?? Holy 1950's.......There are properties in my area that 11k wouldn't even fix a failed septic system never mind buy a house
Rental Property Investor · Atlanta, GA · Member since 2018 · 26 posts · 2 votes
7y
@Sara C. You are correct, there is not a whole lot of talk about the BRRRR strategy when using a conventional method. Can you elaborate on how you are using the BRRRR strategy after getting conventional financing?
Rental Property Investor · Drums, PA · Member since 2017 · 345 posts · 365 votes
7y
@Stephanie Soltero I’ve bought 11 in the past 18 months. The very first one was off the MLS, all others I’ve found.
I’ve sent some direct marketing letters, but majority have been through word of mouth. The waitress at the dinner, the mailman, the cashier at the water company and for sale by owner signs.
My job is to make sure everyone knows I buy houses, I focus on this and deals just become available.
This is what I'm having trouble with, building the holding cost into the HML loan. Holding cost (which consist of monthly payment of HML loan) is dependent on total loan amount, but you can't know total loan amount if you dont know monthly payments. It seems like an infinite loop. Am I missing something?
Realtor · Decatur, GA · Member since 2017 · 135 posts · 92 votes
7y
@Edgar Butler Jr After I purchased the properties using conventional financing the rest was typical for the process. We rehabbed using our own cash, put tenants in place, and then refinanced at 75% of the ARV. So, there are 2 sets of closing costs—but we worked those into our numbers and made sure they were covered (mostly). For both, I've had to leave about 10-15K in each deal, which I'm comfortable with.
Rental Property Investor · Atlanta, GA · Member since 2018 · 26 posts · 2 votes
7y
@Sara C. Ok, thanks Sara. Did you put 20% down going the conventional route? If so, I'm assuming you pulled your down payment back out and would use that again for the next property. Is that correct?
Rental Property Investor · Atlanta, GA · Member since 2018 · 26 posts · 2 votes
7y
@Sara C. Ok, thanks Sara! I have been thinking about this same scenario to see if it would work. I'm glad to see someone else is using the strategy and it works.
This is what I'm having trouble with, building the holding cost into the HML loan. Holding cost (which consist of monthly payment of HML loan) is dependent on total loan amount, but you can't know total loan amount if you dont know monthly payments. It seems like an infinite loop. Am I missing something?
Think of it as doing two loans. The first is your HML loan, the second is your refi.
Your HML loan is looking at your purchase cost, your rehab budget and closing costs. Leave out the holding costs and interest for a moment, that will have to come out of your pocket (reserves) as you have already noted. It will be a 6 month loan, most likely, with some options to extend if needed.
So you should have all the numbers you need here to run your calculations on your payment. Taxes and Insurance will be rolled in. Some of the HML I know actually provide a good calculator for this. Then you figure in your additional holding costs (utilities, etc) on top of this.
If you are able to get a renter in there sooner, then you great. That can be applied to your HML and holding costs, and it will hopefully cover or almost cover your cash outflows.
Once you have your renter in place, then it is a function of getting it 'seasoned' so that you can do a refi somewhere with some bank. That is the last R...
This is what I'm having trouble with, building the holding cost into the HML loan. Holding cost (which consist of monthly payment of HML loan) is dependent on total loan amount, but you can't know total loan amount if you dont know monthly payments. It seems like an infinite loop. Am I missing something?
Yes. I Recommend that you look through few postings, YouTube, a few books, and start attending some real estate meet ups to learn more. You can use a mortgage calculator to figure that out. $100k @ 12% comes out to $1029 per month. You expect to hold that mortgage for 6 months (6×1029) = $6174 in payments to add in to your overall expenses.
Bound Brook, NJ · Member since 2018 · 171 posts · 37 votes
7y
@Calvin Lipscomb ok thanks. This entire time I've been trying to build the holding cost into the HML, but what I should be doing is building it into the 70% ARV. So when I cash out, it covers the holding cost among other things. Am i finally getting it correct?
Madisonville, LA · Member since 2018 · 125 posts · 71 votes
7y
@Edgar Butler Jr
I am doing it this route as well. Only downside is I have to wait 6mos to refinance as the bank likes to see it rented that long. It's not an issue right now but may be later if I want to speed things up
Rental Property Investor · Atlanta, GA · Member since 2018 · 26 posts · 2 votes
7y
@David H. Ok, good to know! I was going to ask about seasoning and if the banks require that when going the conventional route. Are you working with a mortgage broker for the initial purchase and refi or do you go directly to the bank?
Madisonville, LA · Member since 2018 · 125 posts · 71 votes
7y
@Edgar Butler Jr
I'm using a local bank to do the purchase. They only require 15-20percent down and it's an 20 yr ARM so the payments are really low. Then after 6mos I can refi it with a standard bank to a conventional 30yr loan. There may be others that dont require the 6 mos I just haven't looked as its easy this way for now being I know them all. I could also buy the house with this bank but they require 25percent down and are a little stricter on appraisals of houses that need work. But this bank will only do 4 properties so I will have to figure something else out after my next house. I think the bank I am using on the initial purchase does portfolio lending so that will enable me to get 10 properties but I'll have to figure that out soon.
I have not purchased in Lake Elsinore. I just don't think the numbers work for rentals. I was looking at rentals in the Temecula market (about 15 miles south of us) and I saw some 3 bedroom houses for rent in Lake Harveston Park for $2,000/month. This is a more desirable area than Lake Elsinore, yet if we rented out our 5/3 house at around that price, we'd be losing $1,200/month. I just bought a property in SE Michigan for $87k that rents out for $1,100/month.
I honestly do not have much insight in the local real estate market from an investor's perspective - but the local markets have jumped massively as areas like Menifee continue to experience commercial growth. Also many people are moving out here from OC, although the taxes are higher and you couldn't pay me enough to commute back to OC.
I'm hoping to attend this month's IE REIA because I'd love more information on what local investors are doing. In my local market, nothing even meets the 1% rule for renting, and I'm primarily looking to buy and hold.