Here is my ideal BRRR situation in San Antonio, TX and the problems I am having/trying to figure out. I am a little bit of a newb so please bare with me : ) I would just call around to the banks today but it's veterans day and the banks are closed. I am just looking to advice if my idea is feasible. Any help would be appreciated!
Ideal Situation: Buy with 5% down, Rehab, Cashout Refi when rehab is done, Rent it out when rehab is done, Repeat. Get to 10 mortgages and then refi into a commercial loan. Then repeat.
Here are my problems:
Goal 1: Buy - Buy with 5% down on each purchase and do over 6 deals a year
-Initially not a problem, but what about the 2nd and 3rd purchase? Would that have to be 20 percent down? My idea would be to buy with 5% down and refi as an investment property and then with the next purchase, consider that my homestead and put 5% down and not 20%. Is that feasible?
Goal 2 Rehab - OK
Goal 3: Refinance - Refinance with 80% LTV as soon as rehab/renting it out is done
Problem: Seasoning. Do some portfolio lenders not require seasoning? I'd like to do many deals a year and not wait 6 months : )
Goal 4: Rent - Rent it out immediately
Problem: Seasoning. I might need to research this more, but I have run into a few problems with seasoning here.
Goal 5: Repeat - Repeat
As mentioned above, seems like I would have to put 15-20% percent down. Would like to just repeat with 5% down if possible.
If I could find a portfolio lender to do my ideal situation that would be great, but haven't found one yet. Any help is appreciated.
Take my advice with a grain of salt
Goal 1: Buy - Buy with 5% down on each purchase and do over 6 deals a year: Assuming you are financing with bank, 5% downpayment is for FHA loans and I believe it's for only primary residences. Many banks will have a condition that you have to live at least 12 months in your primary residence.
While living in your primary residence, if you choose to purchase another property, it will be considered as 'Investment Property' and generally, you have to put 20% down, and for multi-family i believe it's 25% (Again assuming that you are financing with banks)
Goal 3: Refinance : Personally, I would run my numbers little conservatively here and consider my LTV would be 70% to 75% just to be on more safer side. Yes general seasoning period is 6 months and yes there are few lenders who can do it after 3 months too but interest rate might be little higher comparatively.
Goal 4: Rent : If you financing with the bank as a primary residence, usually there will be a condition that says 'you'll have to live in the property for at least 12 months. But you can house hack though.
To put 5% down on 6 properties a year, you can even choose to go creative financing route like 'Owner financing', 'Subject to' etc
Hope that helps. Good Luck !
@Ryan Kephart Main issue with that strategy is, as mentioned above, 5% down is an FHA or conventional loan. That means the place has to already be in very good livable condition. So there is no rehab or minimal rehab. And any basic rehab (carpets, paint) aren't going to force too much appreciation. FHA also requires the 12 month living period, as mentioned above.
So you're going to have to look for a property that needs significant rehab which will usually require more down plus the rehab funds.
If you are to stick to the 5% down route, it still is a good strategy - you'll just have to live in a place for a year or two, buy another and move in, rent out your original and repeat. I've seen many people do this and become very wealthy over time.
@Ryan Kephart yes sir 5% is for an FHA and it has to be owner occupied and it also has to be in good condition. In many cases they will even require dry and flaking paint to be repaired prior to closing as well as rotten wood. I'm dealing with that as we speak on a house for a client who will be occupying the property. One house a yeah on an FHA and it probably won't be a very good BRRRR but that's really all your going to be able to do. Another option is to I look at hard money lenders to lend you the remaing 15%DP on a conventional loan and then pay them back at the refi. And yes as mentioned above, owner financing.
@Ryan Kephart you've got some good comments above. Keep in mind that our challenge as investors is always cash. Always. Even if you do have $100,000 in the bank....that just means your limit is higher. Eventually that will run out too.
Generally speaking a traditional buyer on an investment property needs 25% down. So if you are buying a $200k home, that's $50k for your down payment and closing costs (approximately). So how many of those can you do with $100k in the bank? Two? Maybe.
So buying your primary home is a good option. It's 5% down (maybe less) and you can at least get started. You do pledge to occupy the property for 12 months but then after that period of time you can buy again. There are plenty of investors that just do that and they are very successful.
Usually for a true BRRRR method we buy off market properties. That's how it normally works.
Keep digging and keep learning. We are here to help!
Thank you everyone for your help! Much appreciated. Still swinging away trying to acquire my first property. Appreciate all of the advice. If this helps anyone, Legacy lender in San Antonio has lenient rules on seasoning for renting. Just a FYI, I figured that out so far. Again, thanks for the help!!