BRRRR Question - Where to borrow from?

Question

I've quickly decided BRRRR is the route for me, and out of state since I live in NY. What I'm confused by as who to borrow from. I have about $15k+ to start with.

For the purchase of the home that I rehab originally am I using my money + a hard money lender? or my money + a bank

for the rehab is it hard money (I'm assuming so)

the refinance comes from the bank I know

Am I going to the bank from the start to get pre approved for the ARV?

Thanks!

John Morgan · Answer

@James Camp

I’ve done a few BRRRRs. I paid cash for my first property. It wasn’t easy to find the $, but I scrounged up the 130k to get started. Then I did a cash out refi to acquire the next property. Then credit card loans to rehab if necessary. Then I’ve repeated this 3 times. It works! But I would do everything you can to scrape up enough cash to snag that first deal. Good luck! Makes it real easy once you own the house outright. Then you have some serious negotiating power buying the next ugly beat up house you plan to rehab.

Dave DeMarinis · Answer

203K is for owner occupied and the OP is looking for OOS investment. One other thing to note on 203K, if you have the money to float each of the draws, it will go much smoother with your contractor.@James Camp An experienced person can easily get 90% of purchase and 100% of renovation from a HML. You will really want to have 15% or so of total project because of insurance, closing/origination costs. Here are a few steps to mitigate your risk.

1. Knowing your refi position is critical because if you can't you will lose the property or be stuck in a high interest loan for a long time. There are good commercial options that will approve based on the property DSCR and not your personal DTI. The fees are higher and rates are probably a little higher but that is your friend.

2. RESERVES, RESERVES, RESERVES - Estimate your renovation time, double that and have that many months of interest payments on hand, utilities and any other operating costs. If it is your first time, you should really be prepared for your renovation to be 2X what you expect. It is ideal (and will really improve your ability to successfully engage contractors) if you can float the construction draws

3. Exit plans - have multiple. If you have to flip it, what does that look like? Really do your homework on your comps/ARV and make sure your comps are not done much more nicely than your reno, or have a location or amenity your subject property will not.

You didn't ask, but here is my advice. Find a local flipper in NY and figure out how you can help them (even for free) for 2 or 3 projects. Build your $10K into $20K during that time and then do an out of state BRRRR.

James Camp · Answer

Capital one spark cash back. It’s 2% cash back unlimited :)

Nicole Heasley Beitenman · Answer

You could do a 203K loan and allow the bank to finance both purchase and rehab.

Dave DeMarinis · Answer

@James Camp it is definitely good to have that discussion with a couple bankers and I suggest a mortgage broker as well. If you find a good one, it will help your situation which doesn’t fit in the bullseye of traditional mortgage.

You also may have a strange situation where what you qualify for is below their minimum amount financed. All things they will advise you on.

Additionally, I’d speak with some commmercial/portfolio lenders to get their parameters AND for you to get a fee and rate estimate. I’ll DM you with some help on this portion.

Tiffany Smith · Answer

@John Morgan I agree!  Come up with the money buy it outright and then refi.  I am actually in the middle of a renovation now that I plan to use this strategy on.  Already used it once on an existing property that had been paid down.  It definitely works if done right!

Whitney Hutten · Answer

@James Camp I've used hard money for the purchase and rehab of all my BRRRRs but 2 (and I regretted using cash on 1 of those because it took me 6 months to refi out due to seasoning requirements). With hard or private money it is possible to get 10% down payments on purchase and 100% of the rehab financed in depending on the deal.  As long as the LLC is a single member LLC with your name listed as the member (no holding companies or trusts), you could refi out to a conventional loan if you wanted.

I've done 203K 1 time... it was an experience.  It got me into a project that I would have struggled to get financing for otherwise, but it was a super painful process.

As far as qualifying with self-employment income, you might still qualify conventionally.  Otherwise, you could explore using commercial lending options.  That means you would use a fix/flip loan to purchase/rehab and then refinance out to commercial terms as they underwrite the property and not you (although you still have to sign a personal guarantee).  I know lenders who will do 80% LTV refi's that are pretty competitive with conventional terms.  Just watch out for points paid and pre-payment penalties if you go that route.

PM me if you have Q's.

Craig Jeppesen · Answer

I would be worried about qualifying for the permanent loan due to your low income. I would make sure you have your ducks in a row and the permanent financing lined up before you pursue a brrr especially if you have to use a hml for the purchase and rehab.

John Morgan · Answer

And it’s nice to have at least one paid off property for the extra cash flow too  And when you do the cash out refis it’s like taking money out of an ATM to go spend on another house or whatever. As long as the next house cash flows with the new loan I’ll keep doing them.

BRRRR Question - Where to borrow from?

Most Popular Reply