Mixed-use (with >50% Residential) BRRR Investing Financing

Rockford, Illinois
Commercial Real Estate Investing
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Mixed-use (with >50% Residential) BRRR Investing Financing

Damon Raynor
Member since 2020 · 6 posts · 3 votes

Hello everyone - hope I'm in the right place.

Looking for guidance on approaching a mixed-use investment property in my area. 

My background: I purchased 2 duplexes (I'm house hacking one of them) at the beginning of the year under my own name. They have been going generally well. Next steps for me are (1) trying my hand at BRRR investing with other people's money and (2) have a goal of owning mixed-use. I learned a lesson of tying my money up in my existing properties which is motivating me to explore BRRR and learning how to use other people's money.

An opportunity came up where I could pursue both. I think it will be a solid investment, from a primarily cash flow perspective, but due to lack of experience with (A) using other people's money, (B) buying mixed-use and (C) rehabbing, I'm not sure about what kind of approach I should take. At the end of the day, I want to own the building and receive income from the rent. It would be a bonus if I can make money from the refinance part (for my first deal). So here are my questions:

1. Since mixed-use is considered commercial, is it better to buy it through a business entity so that I may be able to use business financing?

2. I think this place might go fast, is it okay to initially finance the purchase and then seek rehab funding? This is in contrast to financing the purchase and rehab at the same time. Ideally, I'd like to do a (private lender) cash-buy offer and then seek rehab financing through another source after I have been able to draft a detailed rehab plan.  

3. Are there coaching opportunities on this topic? How about the Mixed-Use BRRR process in general
 

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Steven Torres
Real Estate Agent · Orlando, FL · Member since 2020 · 42 posts · 25 votes
3y

Hey @Damon Raynor!

First I want to Congratulate you on the Investments you have accomplished already.

1) I will always recommend using a business entity whether is a SFH, Multi, or commercial for liability purposes.

2) Financing wouldn't be a bad idea if numbers make sense. With Private money, There is definitely more meat in the bones but it comes down to the risk factor.


3) Mixed-Use BRRR is a niche that not a lot of people coach. I would recommend researching them separately. Find a Mentor for Mixed Use and a Mentor for BRRR.

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  • Steven Torres
    Real Estate Agent · Orlando, FL · Member since 2020 · 42 posts · 25 votes
    3y

    Hey @Damon Raynor!

    First I want to Congratulate you on the Investments you have accomplished already.

    1) I will always recommend using a business entity whether is a SFH, Multi, or commercial for liability purposes.

    2) Financing wouldn't be a bad idea if numbers make sense. With Private money, There is definitely more meat in the bones but it comes down to the risk factor.


    3) Mixed-Use BRRR is a niche that not a lot of people coach. I would recommend researching them separately. Find a Mentor for Mixed Use and a Mentor for BRRR.

    2Reply
  • Damon Raynor
    OP
    Member since 2020 · 6 posts · 3 votes
    3y
    Quote from @Steven Torres:

    Hey @Damon Raynor!

    First I want to Congratulate you on the Investments you have accomplished already.

    1) I will always recommend using a business entity whether is a SFH, Multi, or commercial for liability purposes.

    2) Financing wouldn't be a bad idea if numbers make sense. With Private money, There is definitely more meat in the bones but it comes down to the risk factor.


    3) Mixed-Use BRRR is a niche that not a lot of people coach. I would recommend researching them separately. Find a Mentor for Mixed Use and a Mentor for BRRR.

     @Steven Torres Thank you for your response. I do have an LLC set up and will consider buying this one under that. I will definitely look into separate mentors for each!

    Another question I have is, do you know of any templates for Private lending deal contracts??

    0Reply
  • Scott WolfPro Member
    Lender · Boca Raton, FL · Member since 2014 · 1k+ posts · 957 votes
    3y
    Quote from @Damon Raynor:

    Hello everyone - hope I'm in the right place.

    Looking for guidance on approaching a mixed-use investment property in my area. 

    My background: I purchased 2 duplexes (I'm house hacking one of them) at the beginning of the year under my own name. They have been going generally well. Next steps for me are (1) trying my hand at BRRR investing with other people's money and (2) have a goal of owning mixed-use. I learned a lesson of tying my money up in my existing properties which is motivating me to explore BRRR and learning how to use other people's money.

    An opportunity came up where I could pursue both. I think it will be a solid investment, from a primarily cash flow perspective, but due to lack of experience with (A) using other people's money, (B) buying mixed-use and (C) rehabbing, I'm not sure about what kind of approach I should take. At the end of the day, I want to own the building and receive income from the rent. It would be a bonus if I can make money from the refinance part (for my first deal). So here are my questions:

    1. Since mixed-use is considered commercial, is it better to buy it through a business entity so that I may be able to use business financing?

    2. I think this place might go fast, is it okay to initially finance the purchase and then seek rehab funding? This is in contrast to financing the purchase and rehab at the same time. Ideally, I'd like to do a (private lender) cash-buy offer and then seek rehab financing through another source after I have been able to draft a detailed rehab plan.  

    3. Are there coaching opportunities on this topic? How about the Mixed-Use BRRR process in general
     


    What is the deal size?  That will determine a lot. A bridge loan may make sense for a commercial property. 

    0Reply
  • Stephanie P.Pro Member
    Washington, DC Mortgage Lender/Broker · Member since 2016 · 4k+ posts · 2k+ votes
    3y
    Quote from @Damon Raynor:

    Hello everyone - hope I'm in the right place.

    Looking for guidance on approaching a mixed-use investment property in my area. 

    My background: I purchased 2 duplexes (I'm house hacking one of them) at the beginning of the year under my own name. They have been going generally well. Next steps for me are (1) trying my hand at BRRR investing with other people's money and (2) have a goal of owning mixed-use. I learned a lesson of tying my money up in my existing properties which is motivating me to explore BRRR and learning how to use other people's money.

    An opportunity came up where I could pursue both. I think it will be a solid investment, from a primarily cash flow perspective, but due to lack of experience with (A) using other people's money, (B) buying mixed-use and (C) rehabbing, I'm not sure about what kind of approach I should take. At the end of the day, I want to own the building and receive income from the rent. It would be a bonus if I can make money from the refinance part (for my first deal). So here are my questions:

    1. Since mixed-use is considered commercial, is it better to buy it through a business entity so that I may be able to use business financing?

    2. I think this place might go fast, is it okay to initially finance the purchase and then seek rehab funding? This is in contrast to financing the purchase and rehab at the same time. Ideally, I'd like to do a (private lender) cash-buy offer and then seek rehab financing through another source after I have been able to draft a detailed rehab plan.  

    3. Are there coaching opportunities on this topic? How about the Mixed-Use BRRR process in general
     


    You should be able to get a DSCR loan for the purchase if the property is in decent shape. DSCR loans are not for rehab. If you can go full doc and provide income docs that would cover the properties your purchased because you haven't had the income for more than 2 years, that would be ideal, but if not, then use a DSCR loan for the acquisition. Find out how to get a reduced prepayment penalty so you can refinance it at a higher value after any renovations are completed. Be careful though. Don't spend too much in renovations. Mixed use is going to require a commercial appraisal that uses the income approach for value and the income of the surrounding market shouldn't be much different from the original, so spending too much on renovations may not translate into increased value and certainly not a sharp increase in value.

    1Reply
  • Damon Raynor
    OP
    Member since 2020 · 6 posts · 3 votes
    3y

    @Scott Wolf and @Jim Flynn

    The property is valued at $80,000. Based on my initial estimates, I think rehab is going to be around 200K-250K

    0Reply
  • Account Closed
    PA · Member since 2010 · 339 posts · 168 votes
    3y
    Quote from @Damon Raynor:

    Hello everyone - hope I'm in the right place.

    Looking for guidance on approaching a mixed-use investment property in my area. 

    My background: I purchased 2 duplexes (I'm house hacking one of them) at the beginning of the year under my own name. They have been going generally well. Next steps for me are (1) trying my hand at BRRR investing with other people's money and (2) have a goal of owning mixed-use. I learned a lesson of tying my money up in my existing properties which is motivating me to explore BRRR and learning how to use other people's money.

    An opportunity came up where I could pursue both. I think it will be a solid investment, from a primarily cash flow perspective, but due to lack of experience with (A) using other people's money, (B) buying mixed-use and (C) rehabbing, I'm not sure about what kind of approach I should take. At the end of the day, I want to own the building and receive income from the rent. It would be a bonus if I can make money from the refinance part (for my first deal). So here are my questions:

    1. Since mixed-use is considered commercial, is it better to buy it through a business entity so that I may be able to use business financing?

    2. I think this place might go fast, is it okay to initially finance the purchase and then seek rehab funding? This is in contrast to financing the purchase and rehab at the same time. Ideally, I'd like to do a (private lender) cash-buy offer and then seek rehab financing through another source after I have been able to draft a detailed rehab plan.  

    3. Are there coaching opportunities on this topic? How about the Mixed-Use BRRR process in general

    I love rehabbing mixed-use properties. I don't use the BRRR approach, though. Instead, I use the BRBR model—buy, rehab, bleed, relax. It takes a long time to rehab and stabilize a mixed use property and it's quite possible you will be in the red for 2-years. There is little room for error if you use "other people's money" (note: OPM means "upside down"). I apologize if I am wrong but I feel you don't have a strong track record in this type of project and the OPM thing suggests that you might not be bringing a lot of money to the table. This sounds like a great project, but I suggest that's you bring at least 50% cash ($150,000) to the table.

    1Reply
  • Damon Raynor
    OP
    Member since 2020 · 6 posts · 3 votes
    3y

    @Account Closed can you elaborate on what you mean by "bleed" and "relax"? and "upside down"?

    As a related aside, through talking to traditional lenders, they said something that seems related to what you are saying. They felt that I wasn't in an ideal liquidity position. This sounds similar to you saying I might not be bringing a lot to the table.

    You are right about my track record, this would be my very first rehab and attempt to purchase a mixed-use/commercial space.

    I appreciate your suggestion of how much I should be bringing to the table percentage wise.

    0Reply
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