Investor · Atlanta, GA · Member since 2018 · 21 posts · 3 votes
Hi! So I'm looking into the BRRRR Method and there is this home for sale by an owner in my area. The ARV is $480,000 and the seller wants $270,000. Its going to need a little over $100,000 in renovations.
Who do I approach first? The seller? Or a hard money lender about purchasing the home?
Thank you guys so much for help!
Great question, this questions is very similar to what comes first the chicken or the egg? In this example I would contact the seller. If you saw this for sale buy owner property who else is looking at it? Lock the deal down and find the money after. If the deal is good enough you will find the money.
I would check around just to see if you meet the qualifications needed by a lender.
If the deal had more wiggle room i would say put it under contract and worse case scenario wholesale it out if you can't get financing but the numbers are pretty tight on this one
You are at about 77% of the ARV with all in costs
most lenders will only go up to 70% to 75% max
at that leverage point you will probably see a 90% LTC offer
You should build relationships with hard money lenders and others beforehand, but with regards to a particular deal, you should contact the seller first. You'll wear out your welcome real quick if you contact hard money lenders for every potential deal before you have anything under contract.
I took one Ladies advice "instead of asking lenders for money ask if they knoww any investors you should know." And boom I get email alerts from private & public investors having filled the capture form on one of my websites. So I'm saying, knowing the money is there, I approach the seller -aggressively!
Looking at your deal and running my numbers (I also use hard money that lends at 70% ARV, 13.99% interest and 4 points), you would need to get the purchase price down to at least 230k, preferably even lower in order to get the HML to fund the full repair (assuming you can even find one that will do 100% purchase and rehab there).
I have spoken to a lot of people doing deals in Atlanta and I know there are some pretty cheap properties there that make great deals. If this is your first time doing a deal, I would STRONGLY recommend taking on a smaller project first to get some experience before tackling something this large. The bigger the project, the more room for things to get ugly, and you dont want to be stuck with a mess on your hands from biting off more than you can chew!
I say all this coming from experience of course...been in some rough situations myself. As far as getting the deal vs contacting a HML first, always get the deal first, as you'll need that to even apply for a HML loan. Definitely do some research though and find one that fits what you're looking for and what you might think you can qualify for. You can find whole lists of Hard Money Lenders in your area right here on BiggerPockets. Always look for a local lender rather than national, as they usually have better rates and are more flexible. Any questions, feel free to inbox! Good luck!
@J'Nelle Lake I see you mentioned the BRRRR method, what is the market rent? It would need to be at least $3700 a month to make this a deal. If not, you would be better off putting the property under contract and then assigning to an experienced flipper.
Great question, this questions is very similar to what comes first the chicken or the egg? In this example I would contact the seller. If you saw this for sale buy owner property who else is looking at it? Lock the deal down and find the money after. If the deal is good enough you will find the money.
@Andrew Syrios Thank you for that tip. I'm still fresh and definitely want to avoid making mistakes that harm my reputation before I grow my legs. Thanks!
@Justin Flowers Thank you! I did decide it was too big for my first flip, and like you said, I want to avoid shooting myself in the foot and scale my business first. I'll definitely inbox you. Thanks again!
@Rush Wall I honestly didn't even think about market rent. I'm still new, but that just shows how unready I am for my first flip and how big this particular deal is. I decided to just wholesale it. Signed the contract this morning! Thank you!
@Josue Velney thank you. The deal doesn't make sense for a flip with my experience. So I got it under contract and plan to assign the deal. Thanks for your advice!
@Andrew Syrios Thank you for that tip. I'm still fresh and definitely want to avoid making mistakes that harm my reputation before I grow my legs. Thanks!
Don't be too afraid to make mistakes though. You definitely want to learn as much as you can, but mistakes are part of the process and if you try to hard to avoid them, that probably means you're holding back.