I have a scenario where I'm a bit stumped. I'm currently looking at a package deal on a SFH and a duplex as one purchase. The monthly rents are $2,170. This is about $800 below market value. I see a big upside. The properties will need lots of work but the tenants are currently living and paying rent w/o many asks for improvement. My question is how do you BRRRR a deal with tenants in your property? I don't want to get a traditional FHA loan to start b/c the house won't appraise at a high enough value. However, I can't afford to use an interest-only/hard money loan since leases don't expire for another 10 months or so.
What do you recommend? Any of you use other methods for financing based on the scenario above?
@Mauricio Quintana Any chance the seller would be up for owner financing options? You could then get a little more flexibility to and get creative with your timelines and rehab plans by using one property to pay the interest only payments on both and rehab one at a time?
Thanks for the input, i hadn’t considered this. All units are occupied for the next 10 months so I’m not sure how i could rehab one at a time. Any suggestions?
Since you are purchasing a SFR and a duplex package deal and they have a lot of time left before their leases even expire, I would recommend starting out with traditional conventional financing. I am assuming these are not on the same lot? So they would be financed separately, then. FHA is only if you intend on living in the property. Investor conventional financing is 15-20% down on a SFR and 25% down on a duplex. You could then cash out refinance down the road when the properties are all renovated and rented out. For a cash out with the SFR it is 75% LTV and the duplex will be 70% LTV.
"I don't want to get a traditional FHA loan to start b/c the house won't appraise at a high enough value. However, I can't afford to use an interest-only/hard money loan since leases don't expire for another 10 months or so."
Are you sure this package deal is good? Appraisers usually try to get deals to work if at all ethically possible (and sometimes they stretch that a little). And hard money isn't THAT much more expensive than fixed rate conventional over a short period of time. Maybe what you're fiding here is these properties aren't that great after all and the market is simply telling you that.
You gave us the rents as potentially $2,970. What are going to be your "all in" costs to purchase, close, rehab, and hold by the time the project is complete?
I never replied to you but wanted to thank you for the insight. You were spot on. It actually wasn’t as good of a deal as it seemed. Thanks for helping me dodge a bullet