BRRR opportunity requiring high down payment- what next?

Question

I have a great opportunity for an investment property (small cabin/single family home) in a booming short term rental market in Upstate NY for US$119,000.  I had hoped to get a conventional loan and put 20% down but lenders are requiring 30%, which puts me out for cash I had hoped to reserve for the renovation.  Any ideas about other lenders I should explore?  The property is only on the market for 1 week so I am also up against time constraints.  Thanks!

Chris Seveney · Answer

@Elizabeth Conklin

Try other lenders

I know upen Patel who is on BP has different types of loan programs with lower down payment requirements.

Eliott Elias · Answer

Use hard money initially, if the deals sweet they’ll require less of a down payment

Nick Belsky · Answer

@Elizabeth Conklin

You need to work with a lender who specializes in Short Term Rentals.  80LTV for purchases is very much still alive and well with such lenders. Conventional does NOT handle STRs very well at all.  Fix and Flip is a still an option as others have mentioned, but you may still run into permanent financing issues.  After repairs, seasoning can become an issue to get a full value cash out to cover the purchase, rehab, and loan costs of the Fix and Flip.  You will also need to Debt Service appropriately.  Some lenders require 6 or even 12 months of title seasoning to get a refi based on the new appraised value.  That is a huge issue for nearly any investor looking to recover their rehab costs!

Many investors get caught at the Refinance part of the Fix and Flip.  A solid mortgage broker will help you plan the next steps as well as the first steps... There are too many loan options out there for any one investor, or even mortgage broker, to keep tabs on all of them.  But you can find those that work in BRRRR situations well.

Bottom line, find a better lender for the STR purchase and do the rehab with your own funds. Or find a broker that knows how to pair you up a fix and flip lender who can roll you into perm financing to recoup your rehab and can work with STR properties.

Cheers!

Stephanie P. · Answer

Hey Elizabeth

Lots of short answers, but really no specifics on this thread.  Unusual.

There are lots of questions that really need to be addressed before solid advice can be given.

If you're getting the property for 119K, what's the ARV?

How much is the renovation going to cost (approximate)?

if your exit strategy is for short term rentals, then hard money for the acquisition and renovation is certainly an appropriate way to go, but the numbers have to work.  In other words, you should be able to get 80% for the acquisition and then 100% of the renovation as long as all in, the costs of acquisition and renovation don't exceed 75% of the ARV.

Rural properties are a concern for most lenders, so if the cabin in upstate New York is too rural, your exit strategy of long term funding may not be viable.  If there's no current short term rental data on that specific property, again, it may not be a viable alternative to finding, fixing and then ultimately flipping for a profit.

All the best

Stephanie

Elizabeth Conklin · Answer

Thanks so much, Bobby!  I will be reaching out.

Joshua Messinger · Answer

Hey @Elizabeth Conklin!

Don't let one lender's rate turn you away from this opportunity. Call as many lenders as you can and figure out all the different rates that you get. Don't settle for anything less than what's best for you!

If you ever have any questions don't hesitate to reach out!

All the best,

Josh

Nicholas L. · Answer

OK.  Good luck!

Elizabeth Conklin · Answer

Thanks Nicolas.  I may have misspoke--most of the conventional lenders were requiring 30%--which takes it to about 36K plus additional investment for renovations, which makes it a tougher sell.  I did find alternative financing options and in the process of inspecting to refine renovation costs.

Elizabeth Conklin · Answer

Thanks Isaac and Stephanie.  Yes--the cabin is in a hot short term rental market where I currently own another rental, which has done quite well.  Agreed--the level of repairs will determine whether returns are viable.  Super appreciate the thoughtful questions.

Issac San Miguel · Answer

The property specifics as well as your credit score will determine the down payment.

You could likely get it down to 20% down - if if needs renovation, you could certainly get a fix and flip loan, which can be "flipped" out of into a long term DSCR Loan.

Hard money can typically fund up to 80% of the entire project, with the bulk of your "skin" in the game going towards the down payment of the property.

Happy to answer any questions you have.

Thanks!

BRRR opportunity requiring high down payment- what next?

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