BRRR Financing Mortgage Options - Where do I start?

[Melissa Block]

Hello All, 

I just purchased my first 2 investment properties at auction in Louisiana and used cash. I will also reno the properties using my own money. I want to rent the properties out and get a mortgage on the houses to get my investment back out. 

Question 1: I was told I would have to own the homes for 6 months before I could get a mortgage. Is this true if I paid all cash? 

Question 2: Will I need to make a down payment to get the mortgage and pull my cash back out plus 20% more to give me more cash flow for future investments?  

Question 3: What type of financing should I consider? I went to the network section of BiggerPockets, and there are HELOC, Conventional, FHA, Hard Money, etc. I'm not familiar with all of these, nor do I know what type of financing is best for my circumstances. I'm looking for guidance on where I should start to understand my options better.

About me 1: I don't own my own home at this time. The market where I live is super pricey, so I have invested in another state to get my feet wet with investing, so the mortgages will be ones that I can get in a different state than I live in.

About me 2. I'm not a first-time home buyer. It has been less than 2 years since I sold my home due to uncontrollable circumstances.  So first time home buyer programs aren't an option for me.

About me 3. My goal is to build a portfolio using the BRRR methodology and position myself to where I can buy my own home. Moving to a more affordable state or area isn't an option for me.

About Me 4: I plan to attend my local Auctions so that I can buy my own home cash at auction within the next 6-8 months, reno it with my own cash, and take a mortgage out and house hack it. I need to position myself where I can buy a house, so the financing I use on these first 2 investments can't hinder that. (I hope this is possible).

About Me 5: If you are wondering why I didn't get these financing questions answered before I purchased the homes, it's because I'm new to real estate investing, and I didn't find BiggerPockets until last week, so I was maneuvering through this world with little direction and sheer determination. What is done is done. I can't look back now and focus on the should've. I have to focus on what I can now control. 

About me 6: I have a great credit score, and I don't want my credit impacted to the point where it will prevent me from my personal home-buying goal.  

Hopefully, this is enough information to help point me in the right direction. Thanks in advance for your time! I look forward to hearing from you. 

[Eliott Elias]

You have to wait 6 months, even if you paid cash. No down payment, you will get funded. I would go with DSCR loan

[Dylan M. Davis]

Hey there, would be happy to answer some of your questions! You clearly have some experience which should be considered. 

1.) Some lenders can do an unleased or leased cash-out with only 3 months of seasoning. Because you are all-in on the properties that will help you pull some of your cash out.

2.) You will not need to make a down-payment if you are considering doing what essentially amounts to a  "cash-out refinance" on properties you own. This type of financing is called a "delayed-purchase" in which financing is sought after properties are bought with cash-only. 

3.) Consider taking a look at us or other hard money lenders, we are investors ourselves so we can guide you through what it takes to qualify for the DSCR program that I'd suggest you look into..

Hope that helps! 

[Stephanie P.]

Quote from @Melissa Block:

Hello All, 

I just purchased my first 2 investment properties at auction in Louisiana and used cash. I will also reno the properties using my own money. I want to rent the properties out and get a mortgage on the houses to get my investment back out. 

Question 1: I was told I would have to own the homes for 6 months before I could get a mortgage. Is this true if I paid all cash? 

Question 2: Will I need to make a down payment to get the mortgage and pull my cash back out plus 20% more to give me more cash flow for future investments?  

Question 3: What type of financing should I consider? I went to the network section of BiggerPockets, and there are HELOC, Conventional, FHA, Hard Money, etc. I'm not familiar with all of these, nor do I know what type of financing is best for my circumstances. I'm looking for guidance on where I should start to understand my options better.

About me 1: I don't own my own home at this time. The market where I live is super pricey, so I have invested in another state to get my feet wet with investing, so the mortgages will be ones that I can get in a different state than I live in.

About me 2. I'm not a first-time home buyer. It has been less than 2 years since I sold my home due to uncontrollable circumstances.  So first time home buyer programs aren't an option for me.

About me 3. My goal is to build a portfolio using the BRRR methodology and position myself to where I can buy my own home. Moving to a more affordable state or area isn't an option for me.

About Me 4: I plan to attend my local Auctions so that I can buy my own home cash at auction within the next 6-8 months, reno it with my own cash, and take a mortgage out and house hack it. I need to position myself where I can buy a house, so the financing I use on these first 2 investments can't hinder that. (I hope this is possible).

About Me 5: If you are wondering why I didn't get these financing questions answered before I purchased the homes, it's because I'm new to real estate investing, and I didn't find BiggerPockets until last week, so I was maneuvering through this world with little direction and sheer determination. What is done is done. I can't look back now and focus on the should've. I have to focus on what I can now control. 

About me 6: I have a great credit score, and I don't want my credit impacted to the point where it will prevent me from my personal home-buying goal.  

Hopefully, this is enough information to help point me in the right direction. Thanks in advance for your time! I look forward to hearing from you. 

Question 1: I was told I would have to own the homes for 6 months before I could get a mortgage. Is this true if I paid all cash?  There are lenders that can refinancing using the new appraised value after just 3 months of ownership.  You need a good broker that can help you navigate the different lenders and their requirements.

Question 2: Will I need to make a down payment to get the mortgage and pull my cash back out plus 20% more to give me more cash flow for future investments?  No, you already own the property, so your cash purchase was your down payment.  You'll be limited to 75% of the new appraised value after your renovations and the property being leased, but you should get your money out do to another purchase.

Question 3: What type of financing should I consider? I went to the network section of BiggerPockets, and there are HELOC, Conventional, FHA, Hard Money, etc. I'm not familiar with all of these, nor do I know what type of financing is best for my circumstances. I'm looking for guidance on where I should start to understand my options better. We always recommend you go the conventional rate for financing first.  You may not qualify, but then again, you might.  There are a variety of reasons why people don't qualify, but if you do, the money is cheapest.  Once you've exhausted all of your conventional options, then DSCR (Debt Service Coverage Ratio) money is your next best bet.  Easy qualification with higher rate and fees.

Congratulations on your bravery and perseverance.  Buying two properties is not easy to do.  For additional guidance, feel free to PM me.

Stephanie

[David S.]

@Stephanie P.

I use commercial real estate mortgages from small local community banks and some statewide banks and can finance it on Day 1 of the purchase, well start the process and close about 30 days later. PM me if you want some bank recommendations. I do not have to deal with "seasoning of funds" or navigating the delayed mortgage exemption.

[Robin Simon]

Quote from @Stephanie P.:

Quote from @Melissa Block:

Hello All, 

I just purchased my first 2 investment properties at auction in Louisiana and used cash. I will also reno the properties using my own money. I want to rent the properties out and get a mortgage on the houses to get my investment back out. 

Question 1: I was told I would have to own the homes for 6 months before I could get a mortgage. Is this true if I paid all cash? 

Question 2: Will I need to make a down payment to get the mortgage and pull my cash back out plus 20% more to give me more cash flow for future investments?  

Question 3: What type of financing should I consider? I went to the network section of BiggerPockets, and there are HELOC, Conventional, FHA, Hard Money, etc. I'm not familiar with all of these, nor do I know what type of financing is best for my circumstances. I'm looking for guidance on where I should start to understand my options better.

About me 1: I don't own my own home at this time. The market where I live is super pricey, so I have invested in another state to get my feet wet with investing, so the mortgages will be ones that I can get in a different state than I live in.

About me 2. I'm not a first-time home buyer. It has been less than 2 years since I sold my home due to uncontrollable circumstances.  So first time home buyer programs aren't an option for me.

About me 3. My goal is to build a portfolio using the BRRR methodology and position myself to where I can buy my own home. Moving to a more affordable state or area isn't an option for me.

About Me 4: I plan to attend my local Auctions so that I can buy my own home cash at auction within the next 6-8 months, reno it with my own cash, and take a mortgage out and house hack it. I need to position myself where I can buy a house, so the financing I use on these first 2 investments can't hinder that. (I hope this is possible).

About Me 5: If you are wondering why I didn't get these financing questions answered before I purchased the homes, it's because I'm new to real estate investing, and I didn't find BiggerPockets until last week, so I was maneuvering through this world with little direction and sheer determination. What is done is done. I can't look back now and focus on the should've. I have to focus on what I can now control. 

About me 6: I have a great credit score, and I don't want my credit impacted to the point where it will prevent me from my personal home-buying goal.  

Hopefully, this is enough information to help point me in the right direction. Thanks in advance for your time! I look forward to hearing from you. 

Question 1: I was told I would have to own the homes for 6 months before I could get a mortgage. Is this true if I paid all cash?  There are lenders that can refinancing using the new appraised value after just 3 months of ownership.  You need a good broker that can help you navigate the different lenders and their requirements.

Question 2: Will I need to make a down payment to get the mortgage and pull my cash back out plus 20% more to give me more cash flow for future investments?  No, you already own the property, so your cash purchase was your down payment.  You'll be limited to 75% of the new appraised value after your renovations and the property being leased, but you should get your money out do to another purchase.

Question 3: What type of financing should I consider? I went to the network section of BiggerPockets, and there are HELOC, Conventional, FHA, Hard Money, etc. I'm not familiar with all of these, nor do I know what type of financing is best for my circumstances. I'm looking for guidance on where I should start to understand my options better. We always recommend you go the conventional rate for financing first.  You may not qualify, but then again, you might.  There are a variety of reasons why people don't qualify, but if you do, the money is cheapest.  Once you've exhausted all of your conventional options, then DSCR (Debt Service Coverage Ratio) money is your next best bet.  Easy qualification with higher rate and fees.

Congratulations on your bravery and perseverance.  Buying two properties is not easy to do.  For additional guidance, feel free to PM me.

Stephanie

These answers are all spot on. I would just add though that in this shaky environment, don't be too aggressive on pulling all the cash out (as Stephanie said, 75% ARV and 100% of your costs will be hard limits), but no need to really stretch on that if cash flow is tight (likely given current market and rates). Especially when starting out, OK to keep some cushion and equity in the properties to make sure are OK if things deteriorate.

[Stephanie P.]

Quote from @David S.:

@Stephanie P.

I use commercial real estate mortgages from small local community banks and some statewide banks and can finance it on Day 1 of the purchase, well start the process and close about 30 days later. PM me if you want some bank recommendations. I do not have to deal with "seasoning of funds" or navigating the delayed mortgage exemption.

Thanks, but "small local community banks and some statewide banks" can originate loans within their footprint to grow their portfolio of loans that they can't sell in the secondary market, but that model doesn't work for my company that originates loans in 36 states.  I do agree with you though that going conventional and local is a good way to go if they're plugged into the investment community like that.  It is rare though.
Incidentally, all lenders can originate loans 1 day after purchase if they use the purchase price as a value, but to use the NEW appraised value, something has to be done to the property; paint, flooring, new kitchen/bath, HVAC, roof to increase the value.  Buying a property from an estate or some poor widow doesn't make it magically increase in value.  The investor has to do something to it to make it comparable to other properties with increased value and most banks know that.
All the best
Stephanie