1st BRRRR Success(ish)

179 Replies

@Michael Doherty

Thank you Michael for your experience and sharing it with us. I’m very new to all of this , I have not started my first deal, but this is very helpful for me , when I start my process. Thanks again and good luck with all your deals going forward.

@Ika Sargeant no problem, glad you found the details valuable. I think for someone with no prior relationship with a lender and no prior flips it’s a great deal. Don’t just look at the rate- consider all the terms, points, pre payment, Penalties, draw process ect. 

For perspective, I funded my most recent project with the same lender for 9.99% And 2.5 points so it does get cheaper with experience and relationship. 

Can you go deeper into the hard-money lender/seasoning part. With a hard money lender, aren't you looking to minimize the time you have this loan since the interest rate is so high? Don't you have to make sure the rehab goes pretty quick? How are you renting this house out first with this hard-money loan outstanding?

@Jessica Bonelli a lot of lenders look for the property to be 'seasoned' meaning ownership in your name (day you close) for a set amount of time... 6 months usually. Some lenders only require you to show proof of leases. So depending on how quick your rehab and renting out goes... it could be a quick turnaround. 

@Dan Colantonio you definitely want to complete the rehab as quick as possible to minimize the length of your hard money loan due to the high interest rate- too your point. With my particular lender there was no pre payment penalty so I could pay him off in a month if possible but I had up to 12 months.

You’ll want to renovate and rent out at least 1 unit ASAP so you can start having income coming in to cover your interest only loan. So in my rehab I focused primarily on getting the first unit ready for rent before moving on to the second.
This will buy you enough time to shop around for lenders for the refi. Although as many have pointed out In previous forums, you should have already done your homework and have a REFI lender lined up. 

The hard money lender doesn’t care what you do With the asset as long as they continue to receive their monthly interest. Whether the money comes out of Your pocket or your tenants... it’s all the same to them. Hope that helps Clarify some things. 

@Zayd Alameddine great question- there’s a lot of great articles and forum And debates on this. 
Here's a link to a article that discusses some items that are a decent ROI for your money. https://www.biggerpockets.com/...

Every market is going to be different. I knew in my market that electric heat is a turn off for renters. So the 10k it cost to convert to natural Gas( including a brand new on demand system) was great for renters and also a great re-sale feature. I knew that I wouldn’t get my money back on granite counter tops vs Laminate. I knew that because I was keeping it, I wanted to spend the extra money on waterproof And essentially ‘tenant’ proof LVP flooring vs other options.
A big decision for me was whether or not to reside the house (15k). I opted not to because frankly tenants in my market don’t care what the exterior siding looks like. If I was going to flip it, I think I would have made the investment. But at the time and To this day it would not be a good return on my investment. 
 

 

Good job Micheal on your first BRRRR! As a New investor is is nice to see the math of a real life deal and how you handled the unforeseen variables that seem to always pop up. Being conservative on the ARV seems like really good advice.

Way to go Michael!  It's a win as you took action and made it happen through the challenges and unknowns.  Thank you for sharing the details of the project and your obstacles.  I always like to hear about challenges and the lessons learned.  Thanks!

Wow, incredible stuff dude. This really put things into perspective for me as I am looking for a true BRRRR property on my third deal. Congrats either way! You're a trooper 💪

Lima One capitol came out with the Fix2rent Deal, with only 1 closing on the deal? 1 time closing cost, for the BRRRR method, I am checking into it now for full disclosure to make sure there no hidden issues, that should/will save the average 10% closing cost on the refinance side of the deal into the 30 yr fixed rate. let you know how it goes

Hi Michael,

I'm not following how your cash flow would be $774? wouldn't it be $1274?  (rent $2775- $1501=$1274)

I'm new to this so I'm having a hard time following the math.

btw. Thanks for sharing all the details, it really helpful!

Jeff

Originally posted by @Michael Doherty :

@Dan Colantonio you definitely want to complete the rehab as quick as possible to minimize the length of your hard money loan due to the high interest rate- too your point. With my particular lender there was no pre payment penalty so I could pay him off in a month if possible but I had up to 12 months.

You’ll want to renovate and rent out at least 1 unit ASAP so you can start having income coming in to cover your interest only loan. So in my rehab I focused primarily on getting the first unit ready for rent before moving on to the second.
This will buy you enough time to shop around for lenders for the refi. Although as many have pointed out In previous forums, you should have already done your homework and have a REFI lender lined up. 

The hard money lender doesn’t care what you do With the asset as long as they continue to receive their monthly interest. Whether the money comes out of Your pocket or your tenants... it’s all the same to them. Hope that helps Clarify some things. 

This definitely helped, thank you. I have to look deeper into the hard money lending process.

 

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