The Process of BRRR- Do I have this right?
I'm a pretty process oriented person but there are some elements of the BRRR that I'm just not sure about. I was wondering if anyone can correct me here. I'm I getting anything wrong here? BTW- I'm based in NJ and just not sure how the sales contract/escrow would work when dealing directly with a property owner.
IS THIS THE PROCESS EXPERIENCED INVESTORS USE?
IDENTIFY A GOOD INVESTMENT PROPERTY
- Negotiate with seller and agree on a price.
- Send them a contract that includes:
- an out clause for inspection.
- 10 business day close.
- All cash deal
- Stipulation that the Title is clean.
SELLER SIGNS CONTRACT AND THEN:
- I send money to an escrow agent as a deposit? (I'm unsure about this part. Do I have my own escrow agent or does the seller get one? If I have my own, do I send the signed contract with the check as a binder to the escrow agent?)
- Sales contact goes into "Lawyer review" (this is a NJ thing I believe)
- Inspection
- Title search
- Contractors estimate costs
- Hard money application.
- Hard money lender orders an appraisal of the property.
DETERMINE
- Inspection- all good
- Title- is clean
- Repair costs are in-line
- Appraisal is inline with loan to value offered.
AT CLOSING
- Get certified check for 30% of the buy price.
- Check sent to my lawyer from the Hard Money lender for 70% of the buy price.
- Bring proof of insurance.
- Pay Hard Money lender 2 points of the total borrowed amount.
- Likely pay for several months of taxes.
- Likely pay for several months of hard money interest in advance.
- Have insurance on the property.
- Get first installment from HML to pay licensed contractors and then other installments as work is conducted.
POST REHAB
- Work with realtor to list rental.
- Go to bank to get a conventional mortgage. Have the property re-appraised to get the after rehab value (ARV).
- Once traditional financing is approved (assume 2 months) pay-off hard money lender. Since appraisal is now higher receive a large bulk of initial cash invested back.
- Rent apartments and receive payments from tenants. Cash flow positive goal is $400-$600 a month assuming all costs mortgage, taxes, insurance, utilities, cleaning services, vacancies, capital expenditures.
- Do it again.