I am a first time buyer/investor looking in the Denver market. I currently do not have enough saved to put 20% down on a property nor the income to qualify for the amount that i'd like to be buying at (~400,000 price range). I am thinking of using a conventional loan (to the amount I can qualify for) in combination with a hard money loan, then BRRRRing the property to repay the hard money loan (after a refi) and keeping my conventional bank loan. I plan do use said property also as a house-hack and live in one of the rooms after the BRRRR. Thoughts?
@Riley Wenger I don’t know of a bank that would go for that, and almost all hard money lenders will not loan on a primary residence. You’re better off looking in a price range for which you can qualify.
Keep in mind, the 20% rule removes Private Mortgage Insurance from your loan. You can purchase a primary residence with as little as 5% down.
Have you spoken with a lender yet? I’ve got a few here in Denver that could help you out.
@Riley Wenger I agree that hard money and conventional financing don't go together. There are low money down programs as was mentioned. Get some education from people that know those programs and see what you can afford. Follow the path outlined in Scott Trench's book "Set for Life" to lowering your personal living costs then use the surplus to invest. Sounds like you have the cart before the horse by looking to invest before really have the means to do so.
If you don't qualify for the purchase amount, you won't qualify for the refi amount. Period.
Have you spoken to a lender? See what you qualify for with 5% down, and then set your expectations appropriately.
Riley, a couple of thoughts as there are some potential conflicting interests in your plan. What most of us think of as a conventional loan (one with the lowest interest rate and down payment) usually requires that you will be owner occupying the property, and occupying the property is prohibited for "hard money" loans which are typically only for business/commercial purposes (due to CFPB regulations). Additionally, many hard money lenders will not lend in a jr. position.
BRRRR is usually (though certainly not always) performed with a "private" or "hard money" loan for the purchase (and sometimes the rehab) of the property, then a "take out" loan (long term and at a lower interest rate) is used to "recapitalize" your investment based on the value that you have added through improvements on the property.
We like BRRRR and make loans to borrowers with this exact strategy, but we ALWAYS recommend meeting with a "take out" lender (the one who will finance the long term loan) prior to making any offer on a property. This will give you a good understanding of what the end loan will look like based on your personal qualifications as well as that of the property with your proposed improvements. Most importantly you will have a good indication as to the financial feasibility of your plan.
It is also very important that you speak with a loan officer who has completed similar transactions. This is not a typical loan. There are many examples where lenders have assured an investor that there would be no issues with the "take out" loan yet they subsequently failed to get the loan through underwriting... becoming a huge problem for the investor. While we have no affiliation, we refer our borrowers to a lender who has successfully completed many (I believe 100's) of "take out" loans. I'm happy to share his info if would be helpful.
Again, remember you can't mix a conventional loan with a hard money loan in most situations. Maybe someone else can chime in if they know of a lender who will originate a loan with consideration being given to the income from renting one of the rooms/house hacking.
Kudos to you for doing the research up front, it's defiantly something that needs to be well planned for the best execution.
@Riley Wenger , what others have said about not using conventional and hard money are correct. On paper, combining the BRRRR and the house hacking strategies are great, but they don't work well together in real life.
For a house hack, you don't need to BRRRR it. You can buy a place for 3.5% to 5% down and get the best rates available with the best leverage. You're already winning!
Another option or idea that is slower but has worked well for me (however may be somewhat frowned upon by most on this site) is strategically buy some vacant land. I purchased 2.6 acres in 2015/16 in Park county. I low-balled and got a deal. I'm in the process of selling now and am getting offers doubling my initial investment opening up the ability to buy probably 2 cash flow properties when said and done. You can use the time to save and educate yourself as I did, I can't speak to the long term yet but it seems to be a good path if you can hold off on the gains. Good luck in moving forward and I agree with above posts, talking to a lender and looking at your options is a really good idea too.
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