the BRRR strategy

[Natalie Barber]

What are some things to watch out for when getting hard money to buy a deal and then have a bank refinance as a buy and hold? What makes this process smooth, and what makes this process fall apart? or completely fail? Thanks Newbie Nat?

[Alvin Pereira]

I would say there are a few things you need to watch out for that would make this strategy viable:

• Buying the house below market value
• Rehabbing it won't make your investment more than the ARV
• Rent income is enough to cover hard money monthly payment or you have means to pay it back if the rent from this property doesn't fully cover it
• Make sure you are fully capable of refinancing. If you bought the property under an entity the chances of refinancing are pretty rare. Usually banks will only mortgage to individuals, not businesses. Therefore, as an individual make sure you have extra funds to cover fees and your credit/leverage are clean enough to be able to refinance before you even think of hard money. Imagine you get hard money with crazy payback terms and a high monthly payment and you're not eligible for a refinance, nightmare! lol!
• Repeat - with the cash out from the refinance, if it was well over your investment you should have enough to pay your hard money lender back and invest in another property.

Some things to consider:

• Most hard money lenders have high rates and require a minimum of 6-12 months before you can refinance. Have enough funds or means of making enough to pay back for those months.
• Most hard money lenders charge points (a percentage of the loan to be paid out of pocket) and only allow at most an 80% - 90% Loan to Value (LTV). That means that you'll also have to come out of pocket for the remaining percent of the LTV.
• Most hard money lenders prefer lending to a business and like to see a track record of deals and experience. 

Hope this helps! :)