Rental Property Investor · Member since 2019 · 48 posts · 38 votes
Hey folks,
I am stepping through a multi-family BRRR investment with 5+ units but trying to make heads or tails of the lending options that serve this specific use case. I understand the final cash-out commercial loan which is secured after the property is rented but I'm unclear the type of potential lender for the initial investment. Do I approach a hard money lender assuming they will wrap the property + rehab cost into the same short-term loan, do I treat the initial investment using hard money lending as though it is a flip or other? Apologies, I've done a lot of reading and most of what I've read did not go into this level of detail and I'm trying to educate myself so as not to waste the time of any potential lender.
Or are there detailed materials I can buy or read that discusses this aspect of the BRRRR strategy in detail?
Would anyone be willing to share how they went about their own initial investment with a 5+ unit property where they required a lender for the initial phase?
Lender · TX · Member since 2018 · 936 posts · 713 votes
7y
@Adam Peacock Check with your long-term commercial lender. They may be able to help with the purchase and rehab. Each HML will handle commercial lending slightly differently. Where I work, we lend 70% on the purchase and 100% of repairs or 70% of for both purchase and repairs. It all depends on the numbers and the deal.
Other HMLs specialize in commercial and may be able to offer better purchase %.
Rental Property Investor · Member since 2019 · 48 posts · 38 votes
7y
Ryan, thanks for your feedback brother. So if there's a rule of thumb, should a potential borrower approach HML's (when funding property is assuming the BRRRR strategy) to ask for a loan as though it's a flip scenario? I ask because it seems, from an HML point of view, the first step in a BRRR strategy is basically a flip. And I noticed that loans for flips are funded at a higher rate than loans for anything else. But I want to make sure I interpret this first loan the correct way when articulating a potential deal/request with a potential HML.
Whenever I have a borrower that is planning to do a BRRRR I always suggest that they get pre-approved with their HML and let them know their exact strategy. Then I suggest they start a conversation with different lenders that will be possible candidates for the refi. Typically, HMLs will lend more in regards to LTV to a refi vs a flip.
Residential Real Estate Investor · Kansas City, MO · Member since 2014 · 10k+ posts · 5k+ votes
7y
I like to think of it as a flip, only from a short term loan (preferably a private lender who you network with than a hard money lender as that's much cheaper) into a long term bank loan. And I would always ask up front if the lender will finance the rehab costs as well.