I am a 23yr old aspiring RE investor. This summer i secured my first property though the Home Ready program (a 5bdrm/3bath SFR) that i am house hacking by renting out to college student in the Atlanta area for$600 a room. The cash flow that i am generating from this property along with my check from my regular job each month is being saved to go towards my second property. I"m looking to execute the BRRRR strategy late this year/early next year in order to purchase properties faster. Below are a couple of questions that i would appreciate any wisdom or advice from the community:
- Financing: What are some the best financing options for executing the BRRRR strategy? Are there any type of loans that allow you to roll rehab expenses in the loan that are not FHA? (Since my first property was through HomeReady program (3.5% down) i don't believe i would be eligible for a FHA/203k loan for a year). Or are most rehabs funded through cash?
-Are there any loans that do NOT require 20-25% down other than FHA?
- How could i leverage my first property in the upcoming BRRRR strategy I'm trying to execute, if at all?
-Any advice on looking to purchase 2 properties at the same time to BRRRR?
Any guidance would be greatly appreciated! I wouldn't have been able to secure my first property at 23 without the wisdom and love from the BP community! I am hungry to learn and develop my portfolio.
Howdy @Aaron Jernigan
Financing for the BRRRR strategy is in three stages. The acquisition phase, the Rehab phase, and the Refinance phase. There are multiple options for acquisition financing, I believe the best is your own cash. Next would be a HELOC or LOC, then Private Money, and last is Hard Money. Rehab is also typically financed the same way. It could be included with the acquisition. And lastly you use you use banks or credit unions to do the Refinance. Obviously, down payment requirements can vary greatly with all these forms of financing.
Since you used the HomeReady program for your first property you probably do not have enough equity to leverage at this time. Therefore, you will need to use a combination of the methods I listed. Do you have cash reserves to use? Start searching for Private and Hard Money Lenders. Check with local banks and credit unions and inquire about a Line of Credit.
I would not be concerned with purchasing more than one property at a time until you develop your financing methods first. You need to develop your systems, processes, and team members to be successful.
Hope this helps.
Thank you so much! @John Leavelle
I have about 8k cash reserves right now which i do not believe is enough to cover a down payment or rehab costs, so would be looking for some type of financing. I noticed you said hard money lenders would be last of the options you listed. What are some typical cons to hard money lenders? How hard is it to get a LOC and should I have a deal in pocket ready to buy before i go to inqure about the LOC?
The biggest con of hard money is the costs. You’d probably looking at 12-14 percent with several points.
Hard Money loans are usually the most expensive source of financing. Interest rates are higher, you pay fees up front in the form of points, and you normally have to obtain the loan using a LLC. They still are a source for financing. Just not my preferred option.
If you have decent credit rating a LOC should not be hard to get. You can request a specific amount limit. Of course that doesn't mean you will get the amount requested. The LOC is like a Credit Card. You use it as you need it. Make monthly payments or pay it off all at once. It has a lower interest rate than CC's. There is no need to have a deal ready, because, the LOC can be used for a lot of different things. Get as soon as you want.
Find local REI clubs and meetup groups to network with. You can find all kinds of team members there. Fellow investors, lenders, realtors, contractors, and wholesalers. All import for your investing ambitions.
@Aaron Jernigan you could talk to one of the local banks about a line of credit on your property, sometimes they will run specials for no closing costs. Another option for you would be to locate owner financing deals, you will have to put money down, but it would not be 20% like the traditional banks would require. Last, you could look at Visio and Angel Oak for financing options. These are typically used by investors that do not have W2's or the traditional banks will not loan anymore to them.
Hard money will require about 20% down (of the total costs), even if they advertise that they'll lend 90% of purchase price and 100% of rehab. You'll need to have enough to cover the down payment, closing costs, the monthly interest payments, and initial rehab funds (since they will only provide rehab reimbursements). You'll also need to refinance it out with permanent financing later on since hard money is usually only for 6-12 months.
Perhaps you can find someone else to partner with to bring in the additional funds?
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