I am a bit of a new investor, currently have 5 units under 2 roofs, but have a 5 unit building I am eyeing and I am not exactly sure how to quickly BRRRR it to get my initial investments back. There are definitely some opportunities with the property (long term tenants=less than market value rents,owner pays heat,space to add additional bdrm in each unit). Id expect to have the turnover, construction cost and additional carrying cost for 6 months. Once turned over, when and how would i get my capital back? Any advice would be much appreciated.
@Patrick Gibson 5 units is treated commercial so the bank is going to look at the property from an income vs expense perspective. Raise those rents and then see what the bank will lend you. Typically no “seasoning” but might cap lending based on purchase price.
@Patrick Gibson I would say that all depends on your banks seasoning period. The season period is the wait time you have before you can refinance out of the property. Also, when looking at banks ensure you are looking at ones that provide loan to value instead of loan to cost. The loan to value will allow you to get the most out of your property assuming it appraises greatly.
@Patrick Gibson those long term tenants will make this very difficult for you. You won't be able to raise their rents, and you most likely will not get very far with the renovations until they are out-right? This only works if you do not need your capital back for a while or you have access to other longer term money.
You certainly can do a BRRRR on a commercial multi-family. As mentioned above, it will need to be a commercial loan. As such, most of the qualification and underwriting will be based on the performance of the building. You will need rent rolls, expenses, etc.. to get a long term loan after the rehab. You have to get tenants in place before refinancing.
We are in the middle of doing the same thing on 7 unit building. We’re about half way there after 8 months. We’ll wait until all units are done, as that will give us better numbers for the bank as our revenue will have increased nearly 40% giving us the ability to pull more cash out. FYI, we used cash to purchase and a hard money lender for the rehab funds.
What you can do with rents totally depends on where the building is for both laws and demand. For example, we can raise the rents in our building as high as we wish legally. The market supports a 40% increase. Other locations certainly have laws that limit increases.
I echo much of what @Jeffery Wilen said above. I'll also add that bridge debt is commonly used when repositioning a multifamily asset. It's shorter term financing (often Loan-to-Cost), with higher interest-only payments, to help get you to a position to refinance into longer term agency debt. As one might imagine, bridge lenders will want to know that the operator has experience with this particular strategy. Could be a great tool for what you're seeking. Best of luck moving the deal forward!
@Jeffery Wilen, I appreciate the insight. I wasn't thinking it through that far as to how long my money will be tied up in this asset rather than it might be in a smaller multi-family to where I can get my funds back quicker.
@Anthony W. Ill have to do some door knocking on local banks as I have my other loans through a nationwide lender.
Appreciate you all reaching out.