Investment LOC To Help Fund BRRRR

5 Replies

So my fiancé and I are at unit 6. 4 of those units have happened since March of 2020 and we’d like to get at least 4 more this year. Everything so far has been through conventional financing and no major repairs, bathroom renovation here, kitchen renovation there.

Each of the properties were house hacked and so we like saying that all of our properties are high enough standards we would live in them ourselves but now we want to go the BRRR route and be able to keep using the cash we can pull out when refinancing. We would not be house hacking the BRRRR however. The rental property he bought 10 years ago has equity built up in it. I called a couple local credit unions in Buffalo and one said they would do an investment property LOC at 80% LTV. We would pay a $575 appraisal fee. 15 years would be at 5.75%, 5 years would be 4.74%. They are fine with being second position as there is currently a mortgage on it. He would be able to pull out $40k or so. This money would be ear marked for the renovation and we should have $50k saved up between us from regular jobs by May for a down payment. We'd go through the brrrr, refinance and pay off the LOC and use what's left to go on to the next one.

Can people critique this, share your experience doing similar strategies, etc? I would love to get the experience of using a hard money lender under our belt, but this seems the better, less costly route for now until we prove the concept, experience a larger scale renovation first, and then jump in with hard money when we hit our stride and need it to keep growing.

@Chelsea Knapp so you will have $90K total? Seems light for a full BRRR if you are buying in cash and rehabbing. If you are putting 25% down it can be tough to have the bank finance a property that needs a full renovation. You may want to consider using a construction loan so you only need a portion of the down payment and a portion of the rehab.

@Matthew Irish-Jones I did find a local credit union that would do 20% down non-owner occupied with interest just shy of 4%. Structurally the house appears to be fine. The inside however is terrible looking as in you can tell they bought it and never did any updating short of putting more ugly paint on the walls. It's unique in that it's a 4/4 and one unit has 2 bathrooms and by a college. Bathrooms,kitchens, getting rid of the dropped ceiling in a few rooms and pulling up the ugly carpet to assess what's underneath is a given. If the wall in each unit can be knocked down to open up the kitchen great. Banks don't deny mortgages for having hideous interiors though, so it comes down to getting it at the right price (easier said then done I know). There's closing costs and points involved with hard money to my understanding so I guess my question is this- if I can get it with a conventional loan and fund the rehab with a LOC both being under 6% interest is there any reason not to go that path?

Hey Chelsea! We built our home in 2015 and have been utilizing our LOC ever since to help fund deals, bridge the gap between construction and refi's, etc. Once you have your LOC locked in it's far easier than borrowing the $$$ privately and it allows you to keep everything in house. Assuming you have your rentals in LLC's, you may even be able to qualify for commercial lines of credit (based off your rental income) in addition to any LOC's you already have on your residence. We've got a few of those too. I am not all that concerned w/re: to the borrowing rate for a few months, if it is a great deal the difference between 4%-6% won't have much of an impact on your overall project. Good luck!

Hi Chelsea,

You bring up a good point - if minimizing the cost of capital is your goal (and it's a reasonable one), then the bank you found might be a good option.

There are a couple of reasons why real estate investors might opt for a private or HML in your situation;

1. Speed

2. Specificity

Hard money lenders can often act more quickly than a bank can. In addition, hard money lenders are often set up for the express purpose of financing real estate investors. This is as opposed to a bank, which would generally offer a far broader suite of services. The practical effect of this is that some features can be smoother, e.g. faster construction draws.

Both banks and private/HMLs are commonly used options, and which one you use generally depends on your priority for a given project.

Hope this helps,

Michael