Architect · San Francisco, CA · Member since 2017 · 89 posts · 41 votes
Hi all,
I'm looking to purchase my first investment property in Cleveland, OH. I plan on utilizing the BRRRR method and am currently feeling torn on whether to obtain the property with hard money vs. a traditional loan. I view the benefits of hard money as being able to purchase a property in cash but obviously with that convenience comes higher interest rates.
I was wondering if others have favorable impressions or experience with one over the other for BRRRRs.
My wife and I have recently purchased our first rental property in Cleveland. This was basically a turnkey property. We felt that this was our safest bet as new investors from out of state. However, we are looking to purchase our second one very soon and plan on using BRRRR. I'm assuming you're looking at a distressed property since you want to use BRRRR. I don't have any first hand experience but from what I understand most banks will not offer a traditional loan on a distressed property. This is why most investors go with hard money loans for BRRRR. We are going to start working on building relationships with good real estate agents and contractors to try and make our next deal happen. On a separate note, we have learned a little bit about neighborhoods in Cleveland. Feel free to send me a message if you would like to pick our brain a bit. I'm sure we could learn from you as well!
Alexander Felice, to be clear, you do not believe the current market value/ appraisal results to be a good piece of information that will allow you to negotiate rehab costs into the HUD 1?
@Forrest Holden There are naysayers who say you cant pull out more than purchase price out of delayed finance: they are dead wrong.
You put the rehab on the HUD-1. Simple as that. The fannie mae rule is 75% ltv or 100% HUD whichever is lower. So put the rehab (and insurance) on the there and you can pull it out. It works within the fannie guidelines so any lender can do it, you just need a competent one.
I've done it, and it's fast. last one was less than 9 weeks total turnaround from house close to refi close.
Hi Alex,
Can you elaborate a bit on putting "the rehad on HUD-1"?
What do you mean by that.. How does one do this..?
sure,
when the closing attorney sends me the HUD to sign, instead I tell them to add that amount to the HUD and I give him the name and address of my contractor, who then disburses the money out through escrow.
Alexander Felice, to be clear, you do not believe the current market value/ appraisal results to be a good piece of information that will allow you to negotiate rehab costs into the HUD 1?
sorry I'm confused on what you're asking.
the appraisal will come long after your have signed the HUD and done the rehab.
should look like:
offer accepted
hud gets sent to you
you include your adjustments and send it back.
pay for the whole shebang all at once
rehab
get a tenant
once you have a tenant you can go to the lender and ask to start underwriting
they will order an appraisal
The appraisal determines the value of the home. You need to know this number BEFORE you start.
the value of the home currently, or afterwards has nothing to do with the cost of your rehab; so no it should not be used to negotiate that way. You also can't go back and renegotiate the HUD once you've closed. The key to this process is getting that HUD updated with all upfront costs BEFORE YOU BUY THE HOUSE, then pay for the everything all at once. Once the HUD is signed, it's a done deal.
@Lesley Ray Its all about the the team around you and protecting you from contractors that will rip you off, and PM co's overcharging you and not placing tenants. You sent me a PM last week, stick with what we spoke about as he and I have worked together for about 5 years and simply have a fantastic team in place ( client first mentality ) doing more then 150 deals together ,( I have done more then 400 ) you will be just fine. All the best .
PS click on my Youtube tab on my site you will see our 1st Tour this year back in April with about 50 investors from Ca, ,( we do this 2, times per year. Our next one is in Oct, expecting another 50 or so .
I remember seeing that on their website also the first time I applied, though I can't find it now. I've used SoFi twice in the past. They have never asked what I was using it for other than the initial drop down box on the application, which states "Home Renovation," but never specifies whose home.
I see. I may still be able to use it for rehabs during the BRRRR process :P
I visited 2-3 banks/FCUs and they all told me the same thing that P-loans can't be used for real estate investments, whereas PLOCs can be used for whatever (but also higher interest rate & certain places have principle pay off).