Building a Vacation Rental BR BRRR

1 Reply

Hello All,

My wife and I are new to REI, but are committing and we want to start with a vacation rental.

A quick background:

  • I am aTechnology executive that has managed 8 figure programs
  • Read 8 of the BiggerPockets books in addition to others so far
  • Vacation rentals seem the safest option in this market - not here to debate this though 
  • We built our existing home and I was the general contractor 
  • We want to do the same with this vacation rental

I would like to think of this as a BR BRRR method. Buy Raw, Build, Refinance, Rent, Repeat 😁

I have found some land I can get under market. I plan to go modular route for the house, and be the GC.  I did this with my existing house and I was able to save a ton of money, as we only needed a builder to set the house. House can be completed much more quickly because it is modular, which reduces risk. 

Based on the local comps I believe I can build a similar house for $100k-$150k less than what the market value will be. 

That said, as always the appraisal for the refinance is what determines how much leverage I will have. 

I am wondering if I go in with 25 percent down and do a construction to perm if they will refi at 75% what it will actually appraise at? For example, I think I can build for $400k total but the final will appraise around $500-$550k. Would they finance at $400 or $500-$550?

Or should I look for private lending and try to pay for it all outright and then do the refi?  Are lenders ever willing to do an appraisal on a finished home without it being built if they aren't doing the construction loan? 

I hope my questions are clear but if not, please let me know. I appreciate any help you can provide. 

Chad

@Chad Hensley , this is not my area of expertise, but my experience is that most lenders want you to own the property at least 6 months to a year before they will refinance on its value as compared to the purchase and build price.  It is often referred to as a seasoning period.