The BRRRR Strategy 2.0???

Question

I know an investor who has a relationship with a local bank that gives him a loan based strictly on the appraised value, thus he’s able to have zero out of pocket when acquiring a rental. He then rehabs, rents, and refinances. Isn’t this different from the typical buy and hold investor who has to put money down to accomplish the BRRRR strategy? Which is better? The “2.0” version would give much more equity. Thoughts?

Michael Noto · Answer

@David Beckley Does this person have a long track record with this bank and/or do they have a ton of money in reserves? I know someone who has a similar setup but they are very well off and the family has worked with the bank for decades with different businesses they own.

Mason Hickman · Answer

@David Beckley

That's a great setup with no money ever out of pocket. Hopefully he can find enough deals to keep the machine moving!

David Beckley · Answer

@Mason H. the answer is yes to both of your questions. He’s getting it based on the appraised value prior to the rehab and he’s able to take up to 100% out, although I don’t think he would need to take out the entire 100% to buy his next deal. He’s getting pretty good off market deals.

David Beckley · Answer

@Martin Neal he’s getting the entire 35k, and yes you’re right, he does have the agreement with the bank. Pretty sweet deal. So no money out of pocket.

Mason Hickman · Answer

**in this second version.

Mason Hickman · Answer

@David Beckley

Clarifying Questions:

Are you saying they finance based on the ARV or based on the appraised value prior to rehab? And if it's based on the appraised value prior to rehab, is the bank allowing him to pull out 100% of the appraised value after the rehab is done? If not, I don't see how you're getting more equity if this second version.

Martin Neal · Answer

@David Beckley so just for clarity, if the purchase price is $35K and the appraisal says it’s worth $100K, then the bank gives him a certain percentage loan of the appraised value?? If this is correct, then this isn’t necessary new but more so an agreement he has with the bank. Most banks won’t lend unless you have some skin in the game. It’s one thing to BRRRR and have no skin in because you had money in upfront but to give for example, 75% of the appraised value with no skin in is not a-typical.