The Process of BRRR- Do I have this right?

7 Replies

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.



- 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.


- 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.


- Inspection- all good

- Title- is clean

- Repair costs are in-line

- Appraisal is inline with loan to value offered.


- 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.


- 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.

Speaking only to the HML side and being here in New Jersey, you should get approved from a HML first before going out and trying to find financing once you have a deal. Some HML's will give you specific terms before you have a property, and other's won't. You'll also receive Proof of Funds letter so the seller knows you have the cash.

If you're experienced, and the property is in a good location, some HML's will go up to 70% ARV, but 65% is generally the number. You would need 20%, not 30%, of the down-payment. In some cases 10%.

I have borrowers who do exhaustive inspection searches on their own before they're even negotiating much else.   

Thanks David. Glad to hear from someone who is in NJ! Doesn't appear to be too many on this board. I put an application to a hard money lender. They are saying they will loan 70% of the appraised value...not the ARV.

I assume you work with investors mostly?  Is my process right around the offer- that's what I'm confused about.  You have the seller sign the sales contract but don't I put in some earnest money- say $1,000 to hold the property?  And who does that money go to?  Do I use my own escrow service?  Just confused by that part....

I would agree with David, get a pre-approval from the HML before finding the property.

You should have your own title company that you build a relationship with and (hopefully) can get preferred rates. You can ask them details on EMD. Ideally, they should hold for you. Title should be started as soon as contract it seller signed.


- Get first installment from HML to pay licensed contractors and then other installments as work is conducted. Some lenders pay this at closing.


- 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. Be sure to consider seasoning requirements that your traditional mortgage company may require for cash-out and rate/term refinances. Best advice is get a pre-approval from LT financing company as well and provide it to your HML as a viable exit-strategy. Definitely request the lender's seasoning requirements.

Best of luck! New Jersey is a great place for cash-flowing properties!

Thanks so much Kerry. Good to know about the timing of things. I've heard back the "seasoning" required but didn't know that was a variable thing. I heard it can be as long as 6 months....which means I would have to pay interest to the HML for that something to consider in my calculations.

Title Company

So I should have a title company first, then when I have a seller sign, I simple pass the contract to the title company.  

Post Close
Understood some HML will provide the first installment for the contractors at closing. That's good to know.

Thanks for your help.  Very much appreciated!

I'll say this since there are a variety of ways to skin a cat (btw, who the F skins cats?)...

It really depends how you're acquiring the property.

If it's through a Sheriff's sale, they just want your 10%, period.  You pay it.  If you don't come through with the other 90% you could lose it.  The property could go back on the docket next period and if it sells for the same amount, you can get it back.  If it sells for less, you may owe the difference.

If it's a private transaction, the seller may say, "Okay, I want 5 grand, and you have 20 days to close."  

You don't give that person the 5 grand because that's money that's GONE.  Try getting that back if the deal falls apart.  You give that money to a lawyer, or maybe title, in escrow, on YOUR SIDE.

If it's a REO property, you can use a proof of funds letter from HML because they want to know where the money is coming from. They may ask you for 10-20%, and if the deal doesn't close you'll get that back.

You ever want to connect in Hudson county, or in Jersey, I'll meet up.