Rental Property Investor · Santa Monica, CA · Member since 2018 · 24 posts · 7 votes
Hello,
I am still trying to understand the real estate process and am having trouble understanding how to fund the BRRRR method. Maybe you guys can clarify for me?
I have heard of people being able to use a conventional loan with 20% down to buy a SFH that they plan to BRRRR, but I have also heard that many banks will not loan to people who are purchasing SFH that are not considered a "livable" condition upon purchase. Is it common to get a conventional loan for the BRRRR method?
I understand that another route would be to use a private lender or HML, but if it is your first real estate purchase/rehab are they even going to be willing to work with you? I would imagine that they would want you to have some experience prior to working with them. If that is the case how are you supposed to get experience if you can't BRRRR with a conventional loan and you can't use a private lender because you don't have experience?
If anyone can describe how they funded their first BRRRR method I would greatly appreciate it!
Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes
8y
Most of mine have been purchased with cash (private lender fixed rate with no fees, heloc or myself) or seller financing. I do not pay bank loan costs twice. Nor would I pay HML costs up front if I could avoid that. The cost of capital can get up to 25%+ if not careful.
My next one will be $97k cash out (actually just a rate & term refi to my entity I 'borrowed' from) and will only cost $2900 In lending fees (lenders insurance & appraisal mostly), net of pre-paids. Last one costed $2800 but I only got $34k out. So right around 8ish %. 10% cost of capital total is my max. Establish a relationship with a lender/bank directly to keep borrowing costs down as much as possible.
@Andrew Syrios
Would you mind elaborating on what you mean by some banks are hesitant to give cash back? Thanks!
Some banks only want to pay off loans and not provide any cash to a borrower for a refinance. Most will, but there are some that won't (this was more common shortly after the crash). Just make sure to talk to the bank you're working with to make sure they're OK with cash out refinances.
Rental Property Investor · Bridgman, MI · Member since 2018 · 44 posts · 18 votes
8y
@Adrian Hollifield thanks for your question. I think many new investors are faced with similar questions when starting out. Using a brand new strategy can be intimidating. I know because that was me 6 months ago. I too struggled with the financing part of the BRRRR. What I did was apply for a HELOC as well as raised private funds. It wasn't the most fun process filing all that paperwork but well worth it in the end. What I love about funding a deal this way (eotu cash) is the amazing amount of leverage you have in negotiating and finding the right BRRRR property for you.
To break it down a step further; I paid my investors 9% monthly for 6 months and 5% on the small amount used from my HELOC. After everything was renovated and rented, I refinanced and pulled out all the funds to pay off my HELOC and investors. But now I have a property in my name that is cash flowing and updated. All of this with $0 out of my pocket. Pretty cool stuff! Hope this helps...
bethel, CT · Member since 2015 · 335 posts · 57 votes
8y
@Lee Ripma
Hi, very interested in the brrr method. Curious when you refinance with a commercial lender is there a 6 month seasoning period or can you do refinance as soon as the rehab is done based on the new ARV? Thanks!
Rental Property Investor · Prairie Village, KS · Member since 2015 · 2k+ posts · 2k+ votes
8y
@Ryan Keenan
Depends on the commercial lender but with mine this is no seasoning. He will go 85 LTC after rehab is done and 75% of the units are full.
Some make you wait 6 or 12 months to refi based on value. As I said before the holy grail is those who will lend on value without keeping capital in the deal. I have yet to find a lender who will actually do this but I’d love to.
@Ryan Keenan
Depends on the commercial lender but with mine this is no seasoning. He will go 85 LTC after rehab is done and 75% of the units are full.
Some make you wait 6 or 12 months to refi based on value. As I said before the holy grail is those who will lend on value without keeping capital in the deal. I have yet to find a lender who will actually do this but I’d love to.
Stupid question, but half to ask. What's the difference between LTC anf LTV? Are commercial lenders the only banks that deal with LTC?
Rental Property Investor · Prairie Village, KS · Member since 2015 · 2k+ posts · 2k+ votes
8y
@Ryan Keenan
Cost is how much you are into the property. Value is what the property is worth. So the loan can be based on the cost, or it can be based on the value. So let’s say you’re all in 200k on a property worth 300k. A loan at 75 LTC would be 200*.75=150k. A loan at 75 LTV would be 300*.75=225k. So if you want all your capital back you’d want the LTV. But then you have no “skin” ask capital in the deal. So bankers often don’t like that since you could just walk away if something goes wrong. So they will do a refi based on cost. Make sense?
@Ryan Keenan
Cost is how much you are into the property. Value is what the property is worth. So the loan can be based on the cost, or it can be based on the value. So let’s say you’re all in 200k on a property worth 300k. A loan at 75 LTC would be 200*.75=150k. A loan at 75 LTV would be 300*.75=225k. So if you want all your capital back you’d want the LTV. But then you have no “skin” ask capital in the deal. So bankers often don’t like that since you could just walk away if something goes wrong. So they will do a refi based on cost. Make sense?
Ok I see now it's better to get a refinance based on LTV.. I wouldn't want to leave 50k in the deal.. so if you use hard money you can refinance with commercial lending right away based on either ltv or ltc? And if you want to refinance with a conventional loan using hard money you will have to wait the 6 months to a year to refi?
Rental Property Investor · Prairie Village, KS · Member since 2015 · 2k+ posts · 2k+ votes
8y
@Ryan Keenan
It depends upon the policy of the commercial bank you are using! You can reach out to some local commercial banks and see what their terms are.
@Ryan Keenan
It depends upon the policy of the commercial bank you are using! You can reach out to some local commercial banks and see what their terms are.
@Ryan Keenan
Depends on the commercial lender but with mine this is no seasoning. He will go 85 LTC after rehab is done and 75% of the units are full.
Some make you wait 6 or 12 months to refi based on value. As I said before the holy grail is those who will lend on value without keeping capital in the deal. I have yet to find a lender who will actually do this but I’d love to.
Stupid question, but half to ask. What's the difference between LTC anf LTV? Are commercial lenders the only banks that deal with LTC?
@Ryan Keenan
Cost is how much you are into the property. Value is what the property is worth. So the loan can be based on the cost, or it can be based on the value. So let’s say you’re all in 200k on a property worth 300k. A loan at 75 LTC would be 200*.75=150k. A loan at 75 LTV would be 300*.75=225k. So if you want all your capital back you’d want the LTV. But then you have no “skin” ask capital in the deal. So bankers often don’t like that since you could just walk away if something goes wrong. So they will do a refi based on cost. Make sense?
Hi Lee,
Sorry if you've already answered, but I just want to clarify: the only reason someone should want to refi on LTC basis is if the bank requires it - is that true? As mentioned, it seems that with an HML, I would want all the money out so i could totally pay off the HML and use the additional funds towards the purchase of my next BRRRR purchase - is this how this works?
Well ideally you can get all your money out but banks are often reticent to do so. So you can shoot for 70-80 LTV but don't be surprised if they will only lend 80-85 LTC. Shop around with lenders in your market and see what they will do! I'm only speaking about my market and what banks seem to want.