BRRR strategy advice for triplex

16 Replies

I’m trying to get more info on doing a BRRR strategy. I currently have a triplex under contract. It’s a “creatively” put lease option where I control the property and I pay the seller a percentage of the rents I collect untill I’m ready to purchase the property as a down payment torwards the purchase price ( it’s a year long option to buy) currently I’m renovating the property and getting it ready to rent. And I have untill April of next year to buy the property. SO! With that being said, what the best way to prepare myself to buy, and refi? I will already have tenants in place. And on another note, my credit isn’t all that good and I put all my credit and resources into the renovation. My debt to income is very high. Is there a broker that you have to line this up with? I talked wIth a hard money lender and He laid out to pay the 10% on the purchase price, and then refi into the appraised vaIue of the property after the renovatIon. So he‘ll cash out on the equity and all my hard work! I kinda need that sweat equity. And this is my FIRST deal! Any info will be greatly appreciated!! The property in located in Norfolk, Va.

You need to talk to lenders to find out what their terms are. Keeping in  mind they can easily change a year from now. Most lenders are only going to lend 75% to maybe 80% of market value OR purchase price whichever is less. So a year from now when you buy where is the 20% going to come from?

In 1 year you are not "refinancing", you are "purchasing" so getting cash out or financing more than 75-80% is highly unlikely. 

I am a little unclear what the hard moneylender is suggesting. My guess is he is saying buy in now with his help and refinance in a year. This is a more traditional way to do it. In your case probably a better way to do it.  i don't see how you buy it in a year with the current lease option.

@Ned Carey . Thanks for your reply! Well my goal is to prepare myself for the purchase. I’m planing on getting the down payment for the initial purchase price with the rents from the property and other capital. I just need to know who to go to and when should I start the process because I have a year. I honestly don’t know the timeline in which to refi once I have purchased the property though. As for the hard money lender I just think he’s using that process to his advantage because it’s my first deal.
@Brennan Crick Do you have a good option price for the property? My concern for you is that you will have to purchase this property as a personal loan not a commercial loan, and you already have credit issues and a high debt to income ratio, so you may be at high risk of not being able to get financing next year when you go to buy. You definitely don't want to donate your sweat equity to the owner or hard money lenders, so you may need to find a partner to carry the financing. Which brings it back to making sure you have a good option price so you can find a partner.
@Ernest Grindle thank you for your response! The price is fair. Not what I’ve liked it to be, but it’s workable. We negotiated 135,000 for all 3 unites. Currently estimated value is 191,000 and arv will be around 220k or so. One unit rents for 900 and the other 3 rents for 850. I could take a profit to pay down debt to get my ratio down.

I have seen this scenario a few times in the past 

On a short term loan you can max out at 75% of the ARV. at around 8%

For a long term loan you would land around the 6 to 7% interest rate at 75% of the LTV

points would be around 1.5 to 2 

Credit Score would need to be around 650 to get something done at these number 

If lower you would have to go HML points and rates would be higher of course 12 month loan with options

@Brennan Crick Well Ideally on a brrr you would pay cash for the first property then snowball . Brrr works by cashing out the equity you have in the property .. well if you don’t have any or much equity there’s no money to lend you and your going to be very disapointed . They are going to want low debt, high income ,and a good credit score . its not as easy as people onnhere make it out to be . You are a long ways off to brrr this house and you are at a real disadvantage already by how you structured your triplex . What a strange option and arrangement you came up with on this deal . I’m not sure how a bank is going to like that arrrangement
@Dennis M. The deal is almost like a owner fianace or even a subject to, but I don’t pay the seller, the renter does, and can get cash flow with no money down. Now I know the banks are not the way to go on this, but I’m sure there’s a broker out there that will see the beauty of this deal. Or even a HML can see the money in it. This property generates $2,600 in rents and tenants are already in place. So I wouldn’t think my credit score would matter. Maybe would it be wise just to focus on buying the property and worry about the refi later.
@Brennan Crick Well What if you can’t buy it in April because you can’t get funding ? Don’t kid yourself everyone in the bankIng world is going to look at your debt / income and your credit score ! They also need you to have owned that property for a year before they will give you cash on it
@Dennis M. Oh I’m going to get funding! Before April. Some way some how. It’s going to happen. As for the deal, the seller increases the sale amount for each year I don’t buy. So i still remain in control and I still collect that cash flow. But in all in all, It is seems all the info I’ve gotten so far is regarding my credit. I’ve read of deals that don’t require the credit score. They just focus on the deal. BUT if that’s the case I can work on my credit and be ready in a couple of months. That’s why I’m asking these questions so I can prepare myself for this transition.

Short term Loan ARV would be my suggestion you could get up to 90% of the Costs covered then refi out once the work is done in a year...but make sure to improve your credit in the meantime

This is most complicated BRRR deal I've ever seen.

This was a risky first deal so I would network like a motherf**kr and learn as much as humanly possible. If it were me I'd do anything and everything to improve my credit. That's going to play a big role when you refinance in a year like you mentioned. 

@Brennan Crick - I too have to applaud your creativity on this one. I would personally be leary of taking a HML right away and trying to re-fi out of that at years end. At least have your option period used before going that route. If you stumble on getting re-financed this one could really end badly, however with risk comes reward. I think you get the obvious, bust butt on improving credit and reducing your debt. If your still hovering too high once you get closer to the end of your option I would seek out a potential partner... better yet, start that process now!

I would gladly "option" a building to a tenant that needed work, while I would be fair if there was a problem for you at the end of 12 months there are others that might not be so forgiving... its a contract after all, your an adult and you should understand the risks before you put your money and effort into the deal. Then again, I cannot part water and have screwed up many times (I like to say I have a degree from the "School of Hard Knocks"... now my wife @Kristan Avila keeps me in check). What Im eluding to, be sure you have an equitable escape should rates, time, etc. turn against you in the future. Putting a year into your first deal and having the whole thing unravel because of a technicality - that would hurt (Im simply referring to your 12 month option... if it runs out you may have provided the owner some much needed equity, for free!)

Its ballsy and ambitious... I applaud it, respect your tenacity, and wish you the best! Pull this off and you've proven extremely resourceful. I think your asking the right questions... spend some time digesting some Kiyosaki, get creative and remember this is NOT a individual sport, rather a team effort. I missed out on a year of acquisitions because I had blinders on (back to my wife on that story, once she finally "corrected me" were buying again... and having a ball doing it!