How to finance the Rehab in BRRRR

Question

Hello. My name is Brad and I just got my first real career job where I'll actually be able to set money aside and not continue living paycheck to paycheck (Wahoo!). I'm just starting the process of saving up to get into real estate investing, and also starting to research my best method of getting involved. The BRRRR method is one of the more appealing methods to me. My question is: For those that BRRRR your first property, how did you finance the rehab. Having the cash saved up is an obvious answer, and I know FHA203K loans exist, but they require you to live in the property. Is there an investment loan similar to the FHA203K loan that combined the property and rehab into one loan, or am I making things up that are too good to be true.

Ricky Tran · Answer

I believe some hard money lenders can offer 75%-85% LTV for rehab costs

Brad Reiner · Answer

I’m loving all the insight everyone. I’ve got a lot to think about but this all definitely helps. It’s amazing how many people on here are nice enough to take the time to give some advice.

Bryan Danger · Answer

It's your first investment (and job)... I'd say theres nothing wrong with the slow route and paying as you go, especially if you're putting in the sweat equity to gain the experience and greater value along the way.

Why extend yourself too far when you've just gotten the job and are just getting into investing?
Why not use this time to build a rock solid foundation for your future:
- If offered, invest in your 401k up to the employer match (never turn down free money)
- Save up enough cash until you can get into a solid investment (one that allows BRRRR or a hack or both)
- Use the extra cash you have each month to tackle the projects/reno... if the purchase allows for a hack you can create a new rentable unit first and then use the extra income from that to do the rest of the project/remaining spaces.
- After completing the remaining project rent out that space, go after your refi (which clearly has a lot of equity now because you did the work yourself, added income creating units and without pulling another loan... and you're ready and in a fantastic position for the final R - repeat!

This is exactly how we got started and the immense equity we built into that first property has literally paid for all our other investments over time!

Joe Norman · Answer

Sounds like a Hard Money Loan is your best bet for financing here. As you note there are a lot of other options available to owner occupants, but not so much to investors. Once you have experience and a portfolio you may be able to obtain cheaper bank financing from a local institution, but getting started its either cash, private funds, or hard money. Seller financing is also an option that should be mentioned, but finding a seller who will finance the renovation (not just the purcahse) is little like finding a unicorn.

There are a lot of great hard money lenders in most markets, and there are always a few sharks. Ask around, get references, interview the lenders, and find one you are comfortable with who will not only lend you the money but also help mentor you along in the renovation process - if your lender is actively helping you to succeed then thats a great sign that they are trusted partner for the long term.

Good luck!

Allen McGlashing · Answer

@Brad Reiner

Some Hard money lenders fund 100% of the rehab you just have to put down 10%-20% of the purchase price. These type of loans are called bridge loans they are usually short term 6-12 months because the plan is basically for the BRRRR method once you are done rehabbing you refinance into a 30 year loan.

How to finance the Rehab in BRRRR

How to finance the Rehab in BRRRR

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