Can I BRRRR a project with less than 25% down?

Question

I am an experienced broker in the Chicagoland area and am looking to get into investing. I realize that value add is the best way to BRRRR - are there lenders ( either traditional or hard) that will loan on acquisition and construction costs with less than 25% down from the investor on a project?

Joshua Janus · Answer

You are going to get the best return on the investment by structuring the deal where the hard money is simply a bank, and they have no interest in the property. Even if the interest rate is somewhat high for the money, it can still be worth executing if you found a really good BRRRR as you said.

Grant Thompson · Answer

Zachary,

This is possible, Hard Money lenders will finance up to 90% of the purchase price and 100% of the rehab costs, but typically require some experience.

Zachary Koran · Answer

Account Closed Thank you great info! I am going to vet some hard money lenders to see who they work with on the refi. Also a great reminder regarding the seasoning requirements and portfolio options. Great to connect!

Account Closed · Answer

@Zachary Koran the conventional lenders that I've talked to in my area like to see less than a 49% DTI (including the hard money loan). The lenders (at least the ones I've talked to) only look at the increased difference in the mortgage as a result of the refi. Another big consideration is seasoning requirements. Most, but not all, conventional lenders like to see you own the property for anywhere between 6-12 months before they'll allow you to refi.

Some conventional lenders allow for shorter seasoning, but its critically important to talk to your conventional lender and ask questions to find out what they're requirements are. Also talk to hard money lenders in your area and ask for referrals for lenders that can help with the refi. If you can't find a conventional lender that has favorable BRRRR requirements, another option would be to look into portfolio lenders for the refi.

Account Closed · Answer

@Zachary Koran

Some BRRRR deals if good enough wouldn't require a down payment where you would only need to pay for points and interest on the deal, but these can be hard to come by depending on your area. But a key consideration is having cash reserves after the down payment too. The hard money lenders that I've talked to like to see at least six months of interest payments in cash reserves.

Another consideration is to talk with the lender that you'll be refinancing with as well, and refer them to your hard money lender so that you have clear communication all the way through the process. I suggest to get pre-approved for the refinance loan amount before starting the BRRRR given that the hard money loan will alter your debt-to-income ratio to make sure you don't get stuck in the middle of the BRRRR deal.

Sounds like you're on the right track with BRRRR, best of luck and I hope you can score some awesome deals!

Patrick Bavaro · Answer

@Zachary Koran it’s definitely possible, just got to find the right property and financial institution/network. Right now, I’m doing a new build BRRR (B for Build) for a property out in Cape Coral FL that was only 10% down or around $30k. Build cost was $240k and post construction appraisals are currently coming back around the $340k-$410k range depending on the location of the build. Good luck on the hunt and feel free to reach out to bounce ideas off each other!

Elyse Simpson · Answer

Lender here in Joliet - hi neighbor! Our company has seen rates between 10%-20% down, depending on experience and completed value.

Grant Thompson · Answer

In my experience, the rate is somewhere between 8-12% depending on loan size and duration. I don't know of any hard money lenders that are looking at ROIs, but they typically want to know that the ARV is high enough to refinance out of the bridge/rehab loan after the work is complete.

Zachary Koran · Answer

Account Closed Very helpful and makes complete sense regarding getting pre approved for the refi first. I haven't seen too many banks that do both ( maybe it's conflict of interest) but hypothetically let's say your DTI is already at 40-50% going into a deal it seems like it could be difficult refi out? What's a good strategy then? Credit is good and cash reserves are good.

Zachary Koran · Answer

@Patrick Bavaro thank you! I am on the hunt and would love to connect to hear how you got started etc.

Can I BRRRR a project with less than 25% down?

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