80/20 loans or options for zero/low cost loans?

Question

Are 80/20 loans a thing anymore? Or what options are out there for zero or very low cost down payment loans?

Currently have one duplex, and in the middle of one brrrr, have a HELOC but planning to use that to self fund more brrrr’s and have cash but looking to put that into a STR in a vacation destination to offset some of my W2 next year.

Haven’t seen much discussion about low/no money down loans, so thinking they aren’t a thing, but there are at least a handful of properties that i know of right now that even with 100% funding would cash flow a couple hundred per unit after all reserves.

Eric Sebast · Answer

This is for an investment property that I'm looking to do zero to low money down on.

I understand with owner occupied properties are easier to get lower down payments, and the brrrr's that we are doing we are doing all on cash (currently) and then will do a cash out refi once they are complete. I'm looking for a way to buy 2-4 unit multi-families with minimal money out of pocket to keep rolling the snowball.

Andrew Postell · Answer

@Eric Sebast is this your primary home?  Or is this an investment property?  I'm assuming it's an investment property....because there are tons of low downpayment options for primary homes.  If it's anything different let us know.

You mentioned that this is a BRRRR property.  When we do the BRRRR method we are building in the equity that we need to refinance.  I mean, it's not REQUIRED to build in the equity....but otherwise why do the BRRRR unless you are building in the equity.

What I mean by this is that when you get prequalified for the REFINANCE step you will be told what your LTV should be on your property.  That's the target equity position that we are working for on our BRRRR property.  So if you need 25% equity to refinance - then we BUY and REHAB at 75% of the ARV.  For quick math, if the ARV = $200,000....then you have to BUY and REHAB at $150,000.  You can certainly go over that amount but anything over that amount is money you come out of pocket.

I hope this makes sense how I am describing it.

Sometimes people will then say, "Well Andrew, how do I know what the ARV will be BEFORE I buy the property?"  or "How do I know what my rehab will be BEFORE I get a contractor out there?" - and yes!  That's exactly the right questions to be asking because that's what you need to know to do a successful BRRRR method.  And don't worry, my first few didn't go very well either.  But I got better and better as time goes on.

Generally speaking you will need several things to successfully complete a BRRRR:

• ARV - being able      to calculate the Value on your own (meaning, without the wholesaler      telling you the value) is really important.
• Repairs - You will likely      need to know how to budget the repairs as well.  Getting a      contractor can be extremely frustrating especially if you need to make an      offer without even looking at the property.  How do you calculate      repairs without a contractor?  You may need to lean on other      local real estate investors in the beginning.  Or maybe even      just focus on properties with a very light rehab?
• Lenders - You will need a      lender on your BUY step and on your REFINANCE step.  And I would      HIGHLY recommend to read this article I wrote for Bigger Pockets on      how to find good lenders that you can find HERE. If they are good, they should be      absolutely definitive on rate, terms, costs, etc. Trust me, many lenders      will tell you they can do this...but it's very rare to find. When I first      started BRRRR'ing my properties lenders would tell me "That's      illegal"....it's not, they just didn't know anything about it.
• Finding Properties - and this is the      absolute hardest step of anything right now.  So network like crazy      and find some good resources.  It's going to be hard...but if it were      easy then anyone could do it.

*WHEW*  I know that was a lot but hopefully it helps in some way.  Thanks!

Lyndsay Zwirlein · Answer

If it's owner occupied 1-4 units, lowest down payment amount is 3.5% for FHA. If it's non-owner occupied/investment, lowest down payment amount is 15% down for a conventional investment home loan (Fannie/Freddie). You might be able to find a local lender offering more aggressive terms. However after 2008, financial institutions have moved away from these low money down loans. It was one of the primary drivers of the crash because people got into properties they weren't qualified for and didn't have equity and were left holding the bag when the market shifted.

Jason Wray · Answer

Eric,

Yes, You can still get a first and second mortgage to get into a primary.  You can also get into a second home with only 10% down, No PMI.