Private Money Financing BRRRR

[Ben Burds]

Hello all- new here to posting on the forum but have been following and reading up the past few months and had a quick clarification question on private money loans and refinancing with BRRRR.

I would just like to make sure I am thinking about this situation correctly.

Let's say I were to buy a duplex for $80,000 that needed $20,000 in rehab that would put the ARV around $120,000 and was able to obtain a private money loan for the $100,000 at 10% interest could I then rent out one side of the duplex, move into the other side and refinance after a 12 month seasoning period? During the seasoning period I would pay back the interst on the loan, $10,000, and after refinancing pay the private lender his full $100,000 and then move on with my 30 year fixed mortgage.

Any help would be greatly appreciated as I am not sure if I am on track with this strategy or not.

[Phil G.]

Many private money lenders, who routinely lends money (i.e. not a family member or friend) will not lend for an owner-occupied project. Lending on an owner-occupied project requires licensing and opens the lender up to a bunch of other regulatory issues. One of the advantages of buying and renovating an owner-occupied duplex is the availability of FHA 203K loans with a low 3.5% down payment. If your rehab costs are only $20K, you may be able to use the 203K Streamline loan which can save some loan cost. If you've been following the forums, you've probably encountered the oft-used term "house hacking".

Another program you can use for an owner-occupied property is NACA. NACA is a non-profit which originates $0 down mortgages that can include rehab costs on 1-4 family properties. This program is a bit more tedious to get through, but can be a great program under the right circumstances. You can check them out at www.naca.com.