BRRRR financing for a beginner

[Josh Pryor]

BP family, I need some guidance.

I want to begin BRRRR investing, but lack capital. Big plot twist right? Lol

So my question is should I save up the certain amount of cash to be able to buy the house and afford the remodel or would it be wise to potentially find a private lender to begin now?

My experience is low, but have completed a live in flip the profited 25k, and sold for more than asking. Using that as a down payment, I purchased a duplex that I am adding value to in a few areas. But!

I have remodel experience in my line of work too. As a manager of a hardware big box home improvement store for 10+ years now, I oversaw a $3 million store remodel, while managing to run the store team, General contractor, fixturing contractor, electrician and meeting deadlines throughout all 4 months.

Any idea if that’s enough for a lender to work with? I know that both are options, but have you done this? Feedback?

[Mark Safrin]

RE Lenders exist because of all the buyers that don't have or don't want to use their own capital. 

Lenders will however generally want you to have skin in the game. You will need a deposit - A percentage of purchase, at least 10%. Also the loan amount will likely have a cap of around 75% of LTV. (There are exceptions to needing to cough up a deposit like with a very motivated buyer willing to finance).

You also need cash on hand to at least begin the rehabbing until the end of the first draw. Oh and for expenses like appraisal and closing costs.

Rehabbing experience is possibly (only) required to maximize the percentage of LTV a private lender is willing to lend you on an asset based loan. (That loan to you will likely be resold and it looks even more attractive to note buyers once you have 6+ rehabs under your belt).

[Josh Pryor]

@Benjamin Hurwitz thanks for that info. I appreciate it.

[Mark Safrin]

Originally posted by @Josh Pryor:

@Benjamin Hurwitz thanks for that info. I appreciate it.

 Any time. Best wishes for your future endeavors. 

[Stephanie P.]

Originally posted by @Josh Pryor:

BP family, I need some guidance.

I want to begin BRRRR investing, but lack capital. Big plot twist right? Lol

So my question is should I save up the certain amount of cash to be able to buy the house and afford the remodel or would it be wise to potentially find a private lender to begin now?

My experience is low, but have completed a live in flip the profited 25k, and sold for more than asking. Using that as a down payment, I purchased a duplex that I am adding value to in a few areas. But!

I have remodel experience in my line of work too. As a manager of a hardware big box home improvement store for 10+ years now, I oversaw a $3 million store remodel, while managing to run the store team, General contractor, fixturing contractor, electrician and meeting deadlines throughout all 4 months.

Any idea if that’s enough for a lender to work with? I know that both are options, but have you done this? Feedback?

Best bet, for the highest LTV on the acquisition, would be to get a partner that has experience. Don't think you have to do this alone. There are plenty of folks that have experience that would mentor you on your first few deals and there are lenders that allow for experience partners to get almost 100% financing. Check your local REIA or meet up.

Once the renovation is done and the property is stabilized, you should be able to refinance out at about 75% loan to value with cash out on the new appraised value to do the next one.  Make sure your numbers are tight and your credit stays strong and you should be fine.

Best of luck

Stephanie

[Luis Medina]

@Stephanie P. Keep on mind seasoning period to refinance. Properties under LLC can refinance right away, but if conventional need to wait anything from 3 months to a year.

[Stephanie P.]

Originally posted by @Luis Medina:

@Stephanie P. Keep on mind seasoning period to refinance. Properties under LLC can refinance right away, but if conventional need to wait anything from 3 months to a year.

Hey Luis,

Although the conventional guideline is 6 months, I'm seeing some credit unions and local banks that are allowing refinances earlier.  Most of our wholesale lending partners have little to no seasoning so it's really not an issue for me or my company, but thanks for the heads up.

Stephanie

[Luis Medina]

@Stephanie P. Thanks, can you please PM those lender that are allowing refinance with little to non seasoning on conventional. I will need it soon. Thanks in advance.

[Stephanie P.]

Originally posted by @Luis Medina:

@Stephanie P. Thanks, can you please PM those lender that are allowing refinance with little to non seasoning on conventional. I will need it soon. Thanks in advance.

 Do a post on BP in the state specific thread.  You'll get plenty of hits.  Usually it's a local credit union or very local bank.

[Luis Medina]

@Stephanie P. Thanks, will try that route.

[Scott Smith]

Originally posted by @Josh Pryor:

BP family, I need some guidance.

I want to begin BRRRR investing, but lack capital. Big plot twist right? Lol

So my question is should I save up the certain amount of cash to be able to buy the house and afford the remodel or would it be wise to potentially find a private lender to begin now?

My experience is low, but have completed a live in flip the profited 25k, and sold for more than asking. Using that as a down payment, I purchased a duplex that I am adding value to in a few areas. But!

I have remodel experience in my line of work too. As a manager of a hardware big box home improvement store for 10+ years now, I oversaw a $3 million store remodel, while managing to run the store team, General contractor, fixturing contractor, electrician and meeting deadlines throughout all 4 months.

Any idea if that’s enough for a lender to work with? I know that both are options, but have you done this? Feedback?

 Hey Josh! 

It really depends on what risks you are willing to accept. Any time you involve additional partners into an investment there can be many more complications, but on the flip side you have the ability to scale much faster and leverage more resources. Realistically you need to decide what risks you are willing to take moving forward and commit to that. But as the saying goes, "hope for the best, prepare for the worst."

In any investment I participate in I ensure that I am personally protected from any issues with the investment or other partners, as well as making sure the agreement is clearly written out. You can check this article on the different types of partnerships compared to a venture-specific LLC, and finally I always recommend this article as a good starting point for the topics all partners should discuss and have established before starting an investment.

If you have more questions on the legal side of how these things pull together, let me know.