Rental Property Investor · Chicago, IL · Member since 2017 · 83 posts · 46 votes
Hello All,
I am trying to start investing with the BRRRR Strategy. I am looking into private lenders but my Lender/Agent says he's never heard of a lender giving you 100% purchase and rehab. I bought the BRRRR book and it doesn't discuss needing a 25% down payment?
Are their lenders out there that do these types of loans? Lets say I borrow $100k at 12% and 2 points. This 100k could be used for the full purchase price and the full rehab?
Do you know any that do this? If not I will start searching.
I do but they're local to Colorado, call around, I'm sure you can find one if you call enough people.
On a side note, be very careful leveraging to such an extreme degree. If you have no cash on hand and no partners with cash you're taking substantial risk. You need to have contingency plans and extra capital for when things go wrong.
All too often, new investors with no money are the ones who want to leverage to a high degree when, in actuality, it's generally something you should only do if you have a healthy amount of liquid capital.
You might need to look for an agent that understands Brrrr...I suggest finding somebody through bigger pockets. There is certainly a lender in your market that does 100% financing, either private or hard money. Wish I could lend there!
Pre-Covid you may have hotten the terms that you are asking about if you were seasoned and had relationships with lenders. Post-covid most likely not. I have relationships with lenders for several years and they are telling me 25% down and our hard money lenders have raised their rates considerably post-covid. Sounds like you need to partner with someone.
@Samuel Liapis I have this conversation weekly and it really depends on the investor. First, most everyone uses private money and hard money differently. For all inventive purposes, let’s consider they’re all the same, and yes 99.9% will not lend 100% funding. True private individuals that lend you money in second position , friends and family types, these guys only exist to the investors who can build those relationships. People who do flips with 100% OPM already built those relationships from friends/family/passive fellow investors. This money is typically used as the 25% down payment and holding costs you’re referring to. This is a great strategy AS LONG AS you have those individual relationships.
PreCovid - some lenders would offer “100% financing” but it was always down in two separate loans, a 1st Securing about 70% and a much more expensive 2nd that secures the 30%. This doesn’t exist anymore as most lenders agree the market values will go down in the near future.
From a lenders perspective , borrowers who do not have any “skin in the game” are far less likely to see the project through in the event of a default. The last thing a lender wants to do is foreclose. That’s more work for everyone. In the event of foreclosure, all those friends/family that lost their money will likely never lend to you again. Many times those are the same people with limited funds as well.
It may not seem fair when you’re starting out, but I remember graduating in 2011 with a masters in structural engineering and having 79 out of 80 jobs not even offer me an interview because of experience. So i always like to explain to borrowers that good lenders are on your same team, having skin in the game is what all team members want to be fair, and your first deal is always the hardest! Hang in there, it takes time!!
In that book I believe it’s a 203K Loan that you might be referring too. In that type of loan I believe the rehab costs are included with the loan. You might have to get some quotes 1st to get that $$ amount.
On a conventional loan, you will be required to come up with 20-25% of the purchase price not including the closing cost.
Something hit me that may help new investors understand what a private lender is.
The word private in this case means that no one knows. If you keep something "in private" its like a secret. Private is the opposite of Public. If a lender is publicly look to put money out, then they aren't keeping it private. That "private lender" is more like a hard money source. A true private lender is not in the business of lending money. They are approached about considering lending and they decide to lend to the person that approached them. Private lenders used to have money in CD's or were riding the wave of stock market/mutual funds. A private lender is happy to have a fixed return that's safe. They feel good about a 8% return that is fixed and secured by real estate that's value is substantially more than the loan they made. They aren't professionals. You have to be careful to protect them with the title insurance and hazard insurance that they deserve. Always have a closing with title agent when getting the loan for their safety. Meet them at the house and make sure they understand what their collateral is. Explain to them if your office explodes and kills you and your partners they will get to take that house. They lend on value of house with out an appraisal. They may not know what points are. They may allow the loan to accrue. You have potential private lenders all around you. All you have to do is start asking. I have been doing this for a while. However, I had to find my first private lender. He wasn't a family member of friend. He happened to be a seller. Money follows deals, deals don't follow money.