BRRRR HELP! hit road block, need advice!

16 Replies

Need help/advice.

I found a good deal with a tenant already living in the SFH. I want to BRRRR it(maybe holding off on repairs) but have hit some road blocks. I have the deal under contract now and am starting to talk to banks about Cash out refinance but it seems that in Texas you must live in the home to do a HELOC. Some banks want me to own the property for at least 6-12 months before I can refinance/pull out equity. All I really need is 65%-70% of the appraised value. to pay back private money. Also, the bank wants to be first lien holder. I just started to seek Private/hard money but want to make sure my refi is set in place. Does private money/hard money ALWAYS go as first lien? WHERE DO I GO FROM HERE??? I need cash to close on the house then need to pull out equity to pay off my lender.

Here are the numbers:

Purchase price: $21k

Appraised value: $36.5k

Rent(have a long term tenant): $600/mo

Hard Money goes first. Private money is at owners discretionary.  To be honest with you people do not mind lend relatives money for medical tuition bills and will not want to get into lending practice unless there is a profit sharing scheme.

You will probably need to use hard money.

I think if you buy in cash, then you wouldn't have to wait 6-12 months to refi. So, if you prefer not to use hard money, that might be a way to go in the future.

If I use hard money and the hard money lender is a first position lien then I wont be able to refinance with the bank because I wont have much equity in the home after the lien.

For such a small amount I would get a personal loan from somewhere for 20k and buy it cash. Hold it for 6 months and let the rent pay the loan, find a local lender that would write such a small mortgage and refi at 6 months to pay the personal loan off and get you a few grand for reserves. I think your trying to make this way more complicated than it needs to be.

UPDATE.

I got an unsecured personal loan with a very high interest rate(18%) and paid over $1000 in fees. I got the funds quick and closed on the property Friday. My plan is to now take the property to a bank for a Cash out REFI. However, every bank is turning me away since I am self employed and my last two years of tax returns don't show for much because I was in college.

I only need 60-65% LTV on the property to pay off this high personal loan and be able to cash flow.

With the 5 year, 18%  personal loan, I am cash flowing NEGATIVE $22/mo. After allocating for taxes, repairs, CAPX, and loan. I cant afford to get insurance with this loan. 

Interested to see what others have to say about this. I’m more of a traditional, 25% down using conventional financing with $20k in reserves type of investor so my head is spinning. I’d say sell that property before something goes wrong then go back to square one, save up for a down payment and ample cash reserves for when something inevitably goes wrong, establish 2 years solid and consistent income, build credit, find a bank to work with and start over again in a better asset class. But I’m intrigued by your approach. If the property is truly worth $36.5k, just sell it, pay off the high interest loan, pay Uncle Sam short term cap gains, and you may even have some cash left over which would be a huge win. That asset class isn’t suitable for buy and hold except on a large scale for experienced investors that specialize in that area. I’d be cautious dealing in that type of property even if you had experience, a nice cash reserve as a safety net and a bank lined up which it doesn’t sound like you do. If my assumptions are correct you’re just one bad water heater/ one broken pipe/ one eviction away from big trouble.

Agreed with everything @Steve K. is saying! This is probably the most dangerous area of real estate. Doesn't sound like you have any safety net for capex or damaging tenants. I would lipstick renovate the property and sell hopefully for some profit. 

You screwed up.  Most banks wouldn’t let you pull out more than you have into the property that quickly anyways.  They want you to have skin in the game.

Sell it before something goes wrong and you loose it.

Geez man I hate to come down on you cuz you are in a situation , but you don’t even understand the most basic components of using the brrrr strategy . Look There is a seasoning time for most every bank . And your only going to get what it appraised for minus your equity . So Why did you think you could just automatically get 70% of the value on day one ? If you are going to be in this game for any length if time you need to practice due diligence and research how things are done before you start buying stuff and finding yourself in bankruptcy court .

If this is still just under contract and you haven't closed, you should honestly look at getting out of this deal. The seller can obviously keep whatever earnest money you put down. And that's better for you to lose just a little money than all the money you will lose if you close on this deal.

As suggested, you really need to do more research on understanding the BRRRR strategy before just blinding jumping into it.

And I keep re-reading your first post and not understanding where a HELOC is coming into the equation. Some people use a HELOC (typically and more easily from their *personal* home) to pay for an investment property. The HELOC is used instead of (or in conjunction with) a hard money or private money loan.

First off I need to shout out to @Dick Stevens and @Dennis M. For being the ultimate truth sayers here on BP. They tell you like they see it lol.

@Luke Slapa alright a lot going on here. First thing you did wrong. Get personal loan at 18 percent interest. Is your credit bad? I get offers for loans up to around 35k at 7-8 percent interest all the time, usually on 5-7 year repayment plan. I just toss it in the garbage but my point is it’s not hard to find this.

Second few big lenders will make loans under 35k, most are 50k and above. So you should have paid for this in actual cash, not borrowed cash. My 35k property I did finance but im paying it off aggressively because you can’t really refinance these types of properties anyways. Coincidentally enough the lender who originated that loan doesn’t do mortgages anymore lol, probably because they weren’t making money.

Finally, the self employment thing of 2 years will he just about every conventional lender there is, so you need to find a commercial lender who will refinance the cheap property. I would call 30 banks to find the one.

Update: Have two pre-approvals for cash out refis. I started looking into more asset based lender and had much better luck. Looks like im back on the right track. 

I feel I wont be using biggerpockets again from all the doubt and harsh judgement with very minimal actual advice.

*Edit* I apparently missed a number of posts that already recommended my ideas.. kudos to you all..

Glad it is all working out but @Luke Slapa don't be too harsh on everyone, most are well meaning if unaware of all the options out there.. 

Now you can be an adviser on this for the next guy.  I was going to suggest at your purchase price you might also look into unsecured loans from say Marcus by Goldman Sachs , or if your credit isn't quite good enough for them you can try Lending Club, or loan depot they all do unsecured loans and some will do them with less than perfect credit.

Another option is one I'm using now just a construction loan, with a regional bank here.. they are loaning me 60k for a home 30k purchase and 30 for repairs/personal debt.. to lower my debt to income ratio.. I'll make the repairs get the thing rented and then refi into a 30 year fixed after 6 months or a year.. or I could sell and walk.  I rolled some debt into the deal to make it more attractive to the bank.. more profitable for them.