Financing Success with BRRRR

[Pope Lake]

Hello BP Universe! 

Recently I've been learning about the BRRRR strategy, and how to best execute. I've been reading David Greene's BRRRR book... I would highly recommend!

What I've been curious about the most as of late is how to find the best lending structure for this strategy. For instance, I know that since a distressed property isn't a great form of collateral, it is almost impossible to obtain a conventional loan. 

That being said, I know that many investors turn to either hard money, private financing, or family members to finance the initial home purchase and often the rehab. However, there are limitations to each of these, so - are there other options out there that I'm overlooking? And has anyone applied them to a deal? I am absolutely open to creativity!

For more background on my question, I'm looking to finance roughly 50k on a distressed property, and am targeting 25k for a rehab (max) and would like to refinance after a seasoning period (hopefully no more than 6 mos.). Depending on the financing, I am willing to pay the rehab costs myself to potentially save some money. 

Thank you in advance for your time and insight! 

[Tom Shallcross]

@Pope Lake - a few random thoughts to incorporate into your model, not to discourage you, but just to make sure you are aware. 

25k rehab on a distressed property is not going to do much if the property is truly distressed. I guess it all comes down to how you label a property as distressed, but a lot of our rehabs on truly distressed properties are 75-125k.  Yes this varies all over the nation, size of property...etc, my point is we're talking a large variance in the rehab number from 25k.  There are 50k homes that only need 25k in work, just don't want you thinking the distressed property is only 25k in rehab. 

On the refi, a lot of lenders will only go down to a certain minimum loan value and you're probably hovering around there. Again, different all over the place but usually 50k or 75k loan minimum on the refi for long-term debt. If the min is 75k then that means in your above example you'll need an appraisal at 100K to have get to the 75k loan minimum at 75% LTV. I bring up because once you get the upfront acquisition piece down, you also need to ensure you do have the refi aspect lined up so you don't get caught in between if your plan is to refi.

I'm not an expert in these smaller properties, but I'm assuming those who succeed here are heavier cash investors.  Either holding for all cash or pulling equity out of a few properties down the line.  Someone in that area is having success.  I'd look-up all cash purchases in your area over the past 3 months and call them up.