Flipper/Rehabber · NJ (new jersey) · Member since 2020 · 34 posts · 5 votes
I want to know how I can get the money for the house and rehab?. I am studying the brrr method but i'm very unsure on how I can get the initial money for the house and the rehab? The differences between hard money and private money? Which one is better? Any tricks? Thank you
Typically with BRRRR, you are purchasing a property that is in bad shape. This makes financing a bit tricky because banks are typically opposed to lending on run-down properties. So you usually have to find an alternative. I'll list some options below:
1. Hard-money This is the easiest to obtain but probably the most expensive. Hard-money is given by a lending business and charges high-interest rates. Hard-money can be great because they can lend for the purchase and rehab, but just know that you will pay a hefty price.
2. Private-money Private money can be more difficult to come by but is typically cheaper than hard-money. Private money comes from an individual that is looking to invest some of their funds, typically because they want a higher return than the stock market can give them. Private investors are typically found in your network: family, friends, REIA groups, etc. You will typically develop a strong personal relationship with this person before using them as a lender.
3. Partner Similar to private money, you can purchase deals with a partner. Typically in a partnership, you bring something valuable to the table and the partner brings something different. For example, you may be great at finding deals and managing rehabs, and your partner may have the cash available to purchase a deal and be great at finding/managing tenants. Since you both have skills/resources that the other person needs, you may decide to partner on a deal and split the profits.
4. Cash If you have the means, you can purchase BRRRR deals with cash you have saved.
These are some of the methods you can explore. Keep in mind that while you can keep these forms of financing for the duration that you hold your BRRRR, you can also refinance (the 3rd R) into a conventional loan once the property is fixed up. As I mentioned, banks don't like to lend on distressed properties, but once the property is in good condition, they will likely give you a loan.
Typically with BRRRR, you are purchasing a property that is in bad shape. This makes financing a bit tricky because banks are typically opposed to lending on run-down properties. So you usually have to find an alternative. I'll list some options below:
1. Hard-money This is the easiest to obtain but probably the most expensive. Hard-money is given by a lending business and charges high-interest rates. Hard-money can be great because they can lend for the purchase and rehab, but just know that you will pay a hefty price.
2. Private-money Private money can be more difficult to come by but is typically cheaper than hard-money. Private money comes from an individual that is looking to invest some of their funds, typically because they want a higher return than the stock market can give them. Private investors are typically found in your network: family, friends, REIA groups, etc. You will typically develop a strong personal relationship with this person before using them as a lender.
3. Partner Similar to private money, you can purchase deals with a partner. Typically in a partnership, you bring something valuable to the table and the partner brings something different. For example, you may be great at finding deals and managing rehabs, and your partner may have the cash available to purchase a deal and be great at finding/managing tenants. Since you both have skills/resources that the other person needs, you may decide to partner on a deal and split the profits.
4. Cash If you have the means, you can purchase BRRRR deals with cash you have saved.
These are some of the methods you can explore. Keep in mind that while you can keep these forms of financing for the duration that you hold your BRRRR, you can also refinance (the 3rd R) into a conventional loan once the property is fixed up. As I mentioned, banks don't like to lend on distressed properties, but once the property is in good condition, they will likely give you a loan.
@Bryan Rodas exactly what @Miller McSwain said. Try to remember though, HML and PL have made their money by lending on great deals and outstanding people in the industry. It will be near impossible for you to convince a lender to lend you money with no experience.
- My suggestion is to get into the game through a FHA or conventional loan, they don't care what experience you have
or two, find a partner who has a track record of success.
@Steven Wilson how i can get into the game using fha loans? What about when it is time to refinance? Can I still do cash out refinance even if I use fha? I can't qualify for a fha loan if the property is messed up right?
@Miller McSwain what is my best option, I dont know any private investor or anything. I'm inexperienced also. So I can't get any lender to help em basically?
@Steven Wilson how i can get into the game using fha loans? What about when it is time to refinance? Can I still do cash out refinance even if I use fha? I can't qualify for a fha loan if the property is messed up right?
My first property was a BRRRR deal with an FHA where we cashed out $80k and now it rents for $4,500! Find a property that could use some fixing up (but passes normal livability standards). Go in, add bedrooms, bathrooms, granite, etc. Then you can refinance into a different mortgage!
@Bryan Rodas FHA or conventional are definitely great places to start for your first property. Just keep in mind that those won't work for a BRRRR property in need of a big rehab. It can work for a property that needs some minor fixes though. Also, with FHA, you will be required to live in the property for a year; however, you can still house-hack the other rooms in the property to bring in some rental income!
@Steven Wilson how i can get into the game using fha loans? What about when it is time to refinance? Can I still do cash out refinance even if I use fha? I can't qualify for a fha loan if the property is messed up right?
My first property was a BRRRR deal with an FHA where we cashed out $80k and now it rents for $4,500! Find a property that could use some fixing up (but passes normal livability standards). Go in, add bedrooms, bathrooms, granite, etc. Then you can refinance into a different mortgage!
I'm curious, how distressed was this property. And if it was highly distressed, did you have difficulty getting FHA to lend on it?
@Steven Wilson how i can get into the game using fha loans? What about when it is time to refinance? Can I still do cash out refinance even if I use fha? I can't qualify for a fha loan if the property is messed up right?
My first property was a BRRRR deal with an FHA where we cashed out $80k and now it rents for $4,500! Find a property that could use some fixing up (but passes normal livability standards). Go in, add bedrooms, bathrooms, granite, etc. Then you can refinance into a different mortgage!
I'm curious, how distressed was this property. And if it was highly distressed, did you have difficulty getting FHA to lend on it?
Honestly there was peeling paint, pee on the wall, knob and tube electric, really everything you don't want in an FHA offer. Note there was no large holes, missing fixtures, or damage to the roof which are huge red flags.
But we prayed that we would pass, and it did! I think it depends on who does the FHA inspection.
@Bryan Rodas private money would be preferred over hard money, but you need to know people with money and you have to ask them to lend it to you. Hard money is typically easier but is usually more expensive. Good luck!
Go to your local bank and talk to a commercial lender for an hour and take notes, much easier to absorb in person and you will be able to ask any questions you like to get you started