Using investors with a BRRRR

6 Replies

Hi BP!

My partner and I are going to attempt to do our first BRRRR deal. We understand how to structure the deal, run numbers on the deal, and most of the logistics.

One thing I'm really struggling to understand is going on title for the property. Now, I believe a typical deal looks like this —- You find a deal, get an investor to put up the capital for a downpayment on a short term loan, renovations and carrying costs. Now, when you go to refinance, should you go on title with the investor or how does that work? It was always my understanding that the investor goes on title (as your debt to income will be too high to do so after doing this a few times) and then you would have a lawyer do up a 3rd party contract stating you own the property and the proceeds 50/50 with the investor

Is there someone out there, Maybe a lender, who might be able to clarify this for me? That would be GREATLY appreciated.

Thank you BP!

That is theoretically how it's done. It can definitely be tricky doing it from a far for your first one while not using any of your own money. Are you planning to have someone in that city oversee the project and make sure the contractor is doing his job? Finding an investor might be hard with no track record, especially for 50% as you have to prove why you are worth 50% - what are you bringing to the table? For example, if you are doing all the work to find the great deal plus organizing everything, then that is worth something.  Also have someone who's done it before in that same city analyze your numbers, because if you are using a realtor to find the deal, a general contractor to do the work, expensive short term loan to finance, then there will likely be very little profit left.

As far as the re-finance, whoever is qualifying for the mortgage goes on title. Title and mortgage go together. If you are not helping to qualify, you typically wouldn't be on title, so you'd have a separate legal joint venture agreement showing your interest in the property and the splits. Very very important to have a solid JVA before starting this type of project no matter who your investor is - best friend, parents, or someone else. I've seen TWICE now friends ending their relationship over issues during a BRRR project - and they had a JVA!

I'd be happy to chat more sometime!

@Zorya Belanger ! Appreciate your reply! I remember i saw you posting on a forum about investing in Alberta awhile back but when i tried to find that post i couldnt find it. Happy to have your input!

My plan is to get a property manager to oversee the project. However, I have two other partners and one of them is currently out of the work force so he would fly out to Calgary to see how things are going periodically. But for the most part, we'd use a property manager.

As for the investor, we plan to go on title and bring our own capital for our first deal just to test the waters and see how things go. I was more so curious because I was wondering how we would scale this business if we had to be on title for every property. I imagine the bank would put a stop to that rather quickly lol. However, at the same time I'm still confused about using a JVA without going on title because technically you own nothing. Do you own rental properties where you haven't gone on title?

And you're definitely right about always using a JVA, even with friends and family. Really appreciate your insight!

@Connor Kelly

Easier and cheaper to buy with cash on the front end, whether it’s all your money, all the investors, or a combination of the two. Save the bank financing for the refinance.

The lender doesn't go on the title, you do. You'll do a note and mortgage for the investor.

Also you can have 10 conventional mortgages in your personal name. You can have a lot more in your business name (commercial loans), and can put many properties in one loan. Once they are rented they will offset the debt service. That’s what banks want to see.

Debt is OK if there is income

Liability is OK if there is asset.

Good luck!

@Connor Kelly Doing the first one with your own money is a good plan. I would reach out to Calvert Home Mortgage in Calgary. They specialize in working with investors who are doing BRRRR. When you start scaling, you will likely need the investor to qualify for the re-finance.

As far as the JVA, yes, we have 2 properties for which we are not on title. A property can have legal owners (those on title) and beneficial owners (those that profit or benefit from the property). Legal owner can hold the property "in trust" for the beneficial owners.  Example, Investor A is legal owner that holds the property in trust for Investor A (50%) and Working Partner B (50%), or whatever the split it. This is one way to do it and you need a lawyer to draft that for you as part of the JVA. You can also put a caveat on title saying that you hold a beneficial interest in the property, so there's no way the person on title could sell the property out from underneath you without you knowing about it.

@Michael Sogard are you in the US? There is no such rule in Canada that you can have 10 mortgages. The typical number is 4 for most banks (if you have high enough income to support it), but if you work with an investor focused mortgage broker they can likely get you more using B lenders and monolines. Commercial loans, yes, you can get more, but here you can't get a commercial loan on one residential property. We bought 3 residential properties (total 6 units) together though and got a commercial loan.

Buying with cash on the front end is only easier if you have that $200k or so needed for the typical flip property in Calgary (that doesn't include reno costs).

That said, I can't say I've ever done a BRRRR, so talk to someone in Calgary who has. I've just been around a lot of investors over the last 7 years, many who do that strategy and at one point I was seriously looking into doing it as well, but didn't have the time back then.

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