BRRRR with seller financing

Great Falls, MT · Member since 2018 · 46 posts · 27 votes

@John Armando I think the first thing you need to do is get a very clear picture of the amount of rehab the property is going to need. I wouldn't even think about putting in an offer until you have that figure as its going to dictate how much you can truly spend on the purchase price. I think the idea of using seller financing is great, plus nailing down the rehab amount will give you more negotiating power with the seller. You are right, cash is king and I've heard too many stories of people losing their shirts when they are short on cash.

Remember, if the deal is good enough, the money will find you. Consider bringing in a partner if you need more cash. Even though you will have to split some of the profit, 50% of something is better than 0% of nothing.

Hope this helps and good luck to you!

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Matthew DrouinPro Member

Developer · Rochester, NY · Member since 2016 · 410 posts · 339 votes

7y

@John Armando I totally agree with @Nicholas Osweiler see the property first. It may inconvenience the seller in doing so but you will need them to understand this is the only way for them to get the highest price. Otherwise going in blind will require you to have a huge margin of safety thus a lower price. Have your GC prepared to write detailed workscopes on the walkthrough. So then you can present those when you present your offer. Your seller isn’t stupid. They have probably seen “zestimate” for the house and know what it’s worth. Also insist that they attend the showing with you if possible. It very well may be years since they stepped foot into the home. This will remind them of the condition. In regard to seller financing, go that route first, but with estates, it can be different in terms of motivations and laws. Be prepared with all your options on the table. Maybe offer more on the price with the seller financing. Good job getting this lead, hope you find great success, I know you will.

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Stephanie P.Pro Member

Washington, DC Mortgage Lender/Broker · Member since 2016 · 4k+ posts · 2k+ votes

7y

Originally posted by @John Armando:

Hi All,

I've identified a property in my area that has been vacant for a number of years (previous owner passed away) and is currently owned free and clear by inheritance, based upon my research + local RE attorney. I am working to connect with the current owner to scope out the property and hope to use the BRRRR approach.

My question is, for the initial financing, I'm hoping to stay as liquid as possible to ensure sufficient cash on hand for the rehab. We have sufficient cash on hand + a HELOC on primary to probably buy with cash (depending on negotiated purchase price), but would then have to get creative for rehabbing, we also don't want to blow our safety net. Based on others experience (knowing cash is king), what are the pros and cons for each initial financing option and do you know of a resource that outlines some of these considerations?

As far as I can tell we have a few options for the initial purchase:

- conventional mortgage

- cash (cash, HELOC, 401k (definitely don't want to touch this, and/or other investments)

- HM/PM (could possibly work with some experienced partners to open up this line)

- seller financing

Estimated numbers:

ARV = ~$310k

Rehab: TBD, is a 1335 sq ft home, in a prime neighborhood, been vacant but exterior looks solid (once we tour the property with our GC, this will help us put hard numbers to the rehab)

Target Purchase: ~$110k and would be willing to go to $150k, such that we could at a minimum have ~$65k in rehab costs built in and still be under 70%ARV for the cash-out Refi. If we have to keep10-15k in the property I'd be ok with that.

Rental Rate: $1300-1600 per month

I'm very interested in going the Seller Financing route so would be interested to hear others thoughts on this approach with a BRRRR.

Kind regards!

The numbers look good, especially if you can get seller financing. At those numbers, hard money for just the rehab portion would be available as well if you need it.

Stephanie

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Terri O'Brien

Morrison, CO · Member since 2016 · 42 posts · 12 votes

7y

@Nicholas Osweiler I am in the same situation. How do I estimate the rehab costs/purchase price? How do I know what the ARV will be when I need to refinance and get my money out? Do I get an appraiser over to the property before I rehab to see what it would appraise at?

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Stephanie P.Pro Member

Washington, DC Mortgage Lender/Broker · Member since 2016 · 4k+ posts · 2k+ votes

7y

@Terri O'Brien

Welcome to BP

If you have a friend who is a Realtor, they could do a comparable market analysis from the MLS. For the estimating part, you'll want to get a copy of by J Scott.

Best of luck

Stephanie

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Terri O'Brien

Morrison, CO · Member since 2016 · 42 posts · 12 votes

7y

@Stephanie P. - I have that book - and every other book on Brandon's list! I am going to be purchasing in a different state. I guess you answered my question, I have the realtor who I am using run comps on the property. Sounds right. I was planning on getting a contractor over there as well before I put in an offer to see what they thought. Thank you!

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Nicholas Osweiler

Great Falls, MT · Member since 2018 · 46 posts · 27 votes

7y

@Terri O'Brien I completely agree with @Stephanie P., your realtor is going to be your best friend in this one, at least until you know your market well enough to know what the ARV is going to be. There are some websites out there that offer data on recently sold comps, but they do cost some money. I use a product called Pad Hawk that I found as they are a BP sponsor. While $99 a month is a bit of money, they do offer a lot for that fee. Besides giving you actual sold comps (I know the data is correct as I had my realtor pull the same comps for me a few times and everything was spot on) they have capabilities of a basic CRM, skip tracing, and you can build marketing campaigns including direct mail (you can design the mailings, order them through the website to be printed and mailed for you) and ringless voice mail which you can record and manage right there as well.

Basically, unless you are a realtor or willing to become one, the next best way to get comps is the use of one of these websites. Plus, while realtors are great and I love mine, you will still have to wait for them to pull the data which means you could be missing out on some deals that go fast.

As far as estimating rehab costs, the book that Stephanie mentioned is a great resource. Being able to do this well, again it comes with practice. The website I mentioned also come with a really cool rehab budget estimator tool based upon real market data. I have gotten into the habit of scheduling my walk thru's with the contractor at the same time, which saves a lot of time. That way, they can give you a ball park number while you are waiting for them to send a detailed bid that you can then use to define your scope of work.

Hope that helps and best of luck to you in your REI adventure!

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Drex Tanner

Investor · GIlbert, AZ · Member since 2018 · 24 posts · 3 votes

7y

Private Money is a good option on this property if you can get it at those numbers (especially if you really know what those final rehab costs will be, and have a clear plan with that).

Our PM company (and most others) have some very specific criteria on the deals we would lend on and those numbers would match that (usually around 75% of ARV), so you should have plenty of options to choose from!

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BRRRR with seller financing

BRRRR with seller financing

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