BRRRR - just a dream it seems, the limitations are real

20 Replies

I have to put it out there, let's say you get several BRRRR down and things goes great.

1st BRRRR you manage to refi it into a owner occupied property.

2nd BRRRR investment loan (now what type of loan are we talking about here?), not to mention 3rd, 4th, 5th,... 10th, what lenders would give you that much money seeing that you already have other properties all at super high LTV?

@Chi Ta the thing you are missing is that you don't have properties at super high LTV. You can only refinance at 70-80% LTV depending on the amount of units. In the bank's eyes you have equity and the bank could foreclose and safely sell the property in case of you going bad.

What most people can't get over is how we can "create" equity. My first deal I purchased for $195,000 in Lyons, IL. I was just able to complete a refinance with a value of $310,000! I could then grab a loan for 70% of the appraised value and pocket the difference between the mortgage and the new loan balance. 

Originally posted by @Andrew Goodwin :

@Chi Ta Hard money, a business partner, spouse (if you were the only one on the first 4 loans), you could also establish an LLC and do commercial loans, but then you're need a much larger down payment.

Thanks Andrew, that was more clear and helpful. Do you have any sources for lenders?

What cost are we looking at for hard money? What rates? 

And or Commercial loans?

@Chi Ta You need to add significant equity to the properties during the rehab phase. In my case I also kept many properties without a mortgage for a while as prices were rising and refinanced later. That may not work anymore but you still need realize significant equity gains to pull off a true BRRR with conventional financing.

@Allan Szlafrok I totally get the value add part. I am confused about the financing part. Conventional stops at 4 properties and like @Andrew Goodwin mentioned, people then go with hard money / commercial loans, but how likely will the numbers even make sense with those types of loans?

How high of a LTV will a hard money lender go up to?

@Chi Ta yeah you’d need a commercial loan and they’d usually do 70%. Long term Jard money isn’t the way to go but there are programs out there for long term non conventional financing but the interest rates are high and makes cash flowing hard especially if you are above the 70% threshold. Ask around and see if they make sense but I usually just go with a standard commerical loan.

I was under the impression that you can carry up to 10 conventional loans.  Have talked to mortgage lender here in Arkansas that said I could carry up to 10....I don't think I misunderstood, but maybe I am missing something.

@Chi Ta I do local to my market but Alaska is as far away from my market as you can be without leaving Earth. I know companies like Corevest are in that space so I’d recommend contacting them and seeing who else competes with them to find the best rate.

Originally posted by @Chi Ta :

Well I understand that.... Typically lenders will lend up to only 4 or 5 properties, where do you even get a loan after that?

Chi Ta, I am reading your various questions. Cant speak for other but as Hard Money lenders we don't have a number of loans to you limit. Need 20 loans? My lending capacity is, for practical purposes, unlimited. Your ability to to pay for loan deposits and costs however is probably not unlimited 

You will need to find the ability to pay the deposit of whatever % of purchase we do not cover. (We have a % purchase cap and %of LTV cap). You are going to need skin in the game unless you can find creative solutions like owner financing, friends/relatives happy to take a second lien position or whatever.

However as you grow your BRRRR empire, your income increases. You can afford more and bigger loans.

Now personally you can make a deal and doing business with you easy and attractive to a HML like me. For instance:

- If you want a ballpark rates and terms quote over the phone, consider coming knowing your prospective property acquisition address, approximate purchase price, LTV, ARV, your credit score and a simple property count of your experience.

- Your property should be in my comfort zone which in my case includes: Well above my minimum $80k including rehab loan size (the more the better), not too rural (seriously no McMansions somewhere in outer Hicksville - nothing against people living there, my underwriters seem allergic to wide open spaces), no groundups or land or mobile parks.

- Please don't come to me saying that so and so has offered better rates or less points or less closing fees. Unless this deal is REALLY attractive (currently this means starting with a loan above 1M) my reaction will likely be to smile, wish you well and say to go with the other guy. We get lots of people who come back to us sheepishly mentioning that other guy wanted 30-45 days to close). 

None of this is to scare you off however. :)

Hope this insight helps. Best of luck in your endeavors. 

@Allan Szlafrok Thank you for the recommendation! Up Vote! I'm actually in California, and want to invest in California, Texas, and Florida. I'm not sure why BP thought I was in Alaska haha... do you have any good investors to recommend for these areas?

Originally posted by @Chi Ta :

@Benjamin Hurwitz Do you have rate sheets? I'd like to explore the option of purchasing several properties a month.

Thanks Chi Ta. I presume you wish to invest in California where you live? We do not yet lend directly in that state for smaller loans. (In a year's time we probably will). If you PM/email me, I will be happy to refer you to a good lender to whom we have referred lots of happy CA clients in the past.

@Taurus Bunkley I recently used a hard money loan for a 6 unit property I purchased. in Cicero, IL. I found the lender through my network (my managing broker actually). I started by reaching out to all the accredited investors and high net worth folks I knew to see if any of them did lending. I was immediately surprised to find out one of the attorneys I have worked with does lending. I ended up getting a solid deal through this two man operation my managing broker knew. 

@Chi Ta I started with nothing, I went to a seminar and the guy said if you don't have any money get a bunch of credit cards and buy a house, so that's what I did. 

My first house I bought using a bunch of credit cards. I kept at it until I had 27 rental properties. The banks were a problem on each and every property. But they are only a one time problem, so I had to solve 27 banking problems to get there. Not the easiest thing but not impossible.

I have never seen two banks with exactly the same lending rules. They are all a little different, so go to lots of banks and ask what they are looking for to make a loan.  If they will only make 3 or 4 loans on rental properties, then get your 3 or 4 loans and then go to a different bank and start working with them on the next one.

The bigger problem for me were the tenants, they were a problem each month, and 27 tenants times 12 months a year = 324 problems each and every year.

Because of all the tenant issues I sold all my rental properties and now invest in syndicated deals, so I don't have to deal with tenants any more.