First property - funding

14 Replies

Hi my name is Glenn, and my wife and I are looking to do our first BRRRR deal in the beginning of 2019. We stay in the chicagoland area. The problem that we are running into is funding the renovations. We thought about using credit cards to fund the renovations but don’t want to risk damaging our credit score to do so. Also, we believe we can do a conventional loan and pay the 20% down payment but the renovation cost is what we will have trouble coming up with. Any suggestions would be helpful. Hard money is our last option and we don’t have friends or family who will lend us the money. Anyone who’s ever been in this situation, what did you do?

Hi Glenn. I don't recommend using your credit cards just yet. If I were you I would start putting money away, and if you're already doing this, continue to do so and live as frugal as possible. I would also look into Biggerpockets Money Show, they have great tips that will help answer a lot of your questions. I would also read as much as possible, starting with Brandon Turner's book (The Book on Investing in Real Estate with No and Low Money Down). 

Now, if you want immediate options I suggest looking into seller financing to help you finance the property and use the money you do have for repairs. This is going to take some out of the box thinking, and some negotiating to get the biggest bang for your buck. You may want to start with wholesaling, to help you build capital. I would also suggest looking into house hacking, and familiarizing yourself with all of these options (these ideas and more you'll be able to find in Brandon's book). But don't stop there, scour this site and all it's worth. You will not be displeased.

Good luck, and if you have more questions feel free to PM me. 

@Glenn Curry

As @Matt Crusinberry recommended, save save save. Real estate is a very expensive business and, no matter what you read or hear, you need money to invest in real estate. Later, when you have contacts, negotiating skills and a track record, there are creative ways to do more without funds, but it's not a way to try to start.

That being said, the most important thing you can do is network network network. Attend all the local real estate investor meetings that you can, and there are a ton in the Chicago area. Find meetings on MeetUp.com and NationalREIA.org

Real estate investing is not an isolated business. The people you get to know at these meetings will teach you the vocabulary, the hot markets in your area, what vendors to use (attorneys, contractors, subs, title companies, lenders, etc.). 

And, being newer as you are, they are probably the ones who will loan to you starting out. Private money is not only from friends and family. If you have a great deal, other investors in your area will loan to you for interest and points or a piece of the deal. Better to pay for funds than to lose the opportunity. When you have a great deal, the funds are always available.

Good luck to you and your wife!

Ditto what @Bob Floss II says. If you cant do the deals and a HML can help you grow and scale your business what not look at that option. Just be sure the deals/flips can cover the financing and holding costs. Drill down into the numbers and make sure they work. And then be disciplined with the execution so you work to your deadlines and budget.

Credit Card debit would be a much more expensive option. 

Plus a good Hard Money lender brings more that just funding. Local real estate knowledge, contractor contacts and other expertise. Its in their interest that you succeed and not fail. 

@Glenn Curry Keep looking at different banks. There should be some that will have you put a down payment on the purchase price and then add 100% of the rehab costs into the loan, as long as the ARV comes back close to expected. Our bank does this, and I know others do as well. Local banks and credit unions are always more flexible this way. Good luck.

Have you looked at a 203K loan? If you could occupy, or could plan to occupy the property for a period, that could be a viable option. Once you do a couple great deals, this problem will go away. It's a very common problem for people when they are getting started- build equity and/or save and you'll be fine. Good luck!

Did anyone else notice that they're putting 20% down?  Why don't you put down 3.5% and use the remaining 16.5% for the renovations?

And hard money won't work.  They don't lend on owner occupied properties.

@Scot Howat he didnt mention that he was occupying the property. @Glenn Curry , hard money is a great way to get into BRRRRing your first property for a number of reasons. 1. Theyll lend on a property that needs work. 2. Theyll fund the rehab along the way (the original reason for the post). 3. They'll analyze the deal as well, to make sure it'll make money. They do they're best not to loan money on bad deals, and this being your first, it may be advantageous for you to have another set of eyes on the deal.

Why are you against using credit cards? If that is your only option, it is better than hard money. The whole point of brrrr is to fix it up and do a cash out refinance. If done correctly you will be able to pay off the credit cards afterwards. 

Id much rather do that than pay a large percentage to a hard money lender. The only way you will damage your credit significantly is if you don't pay your bills, or have multiple credit sources out there already.

Some banks will lend you the money to do the repairs. They will put it in escrow and release it in parts as you reach certain points in the rehab (and prove it with invoices and pictures and what not). You should ask the banks you're talking to if they are open to this.

@Glenn Curry If you have w-2 income and a good relationship with a bank branch manager. You can get a <250K personal LOC with no fee (30$ annual) for about 7-8% APR. Try local credit unions. BECU offered me one without even applying for 50K. Another option is the 5% Balance transfer for a year. But HML definitely should be your last option.

@Glenn Curry - I'd avoid credit cards unless it's your last option.  If I had to rank the best options, first would be considering moving in as a primary residence for a year if you can.  This is the easiest way to get a low-down payment reno loan with great rates and less hassle.  Depending on the work needed, perhaps you can live there for most of the time while things are getting finished up....and hence, save on carry costs since this will be a roof over your head  as well.  Not ideal perhaps, but we all have to get started somehow.

Next, have you considered a partner?  Preferably not just a silent investor, but someone that has some experience?  Then you benefit not just from the capital contribution, but experience/guidance.  Whether or not that relationship continues on future deals, you learn a lot on that 1st one.  This of course cuts into your profits, but the education gained has a value too.

Next would be hard money.  There are some decent options out there, happy to share if you're interested.

Last is an unsecured loan.  Depending on your income and credit, you can get your hands on an unsecured loan pretty easily and at rates that aren't too awful.  Thing is, you'd likely need to obtain that now and deposit it into your checking, let it sit for a few months, and pay interest all the while.  Mortgage lenders won't allow an unsecured loan to serve as a liquid asset for the purposes of down payment and qualification.  So, those funds need to "season" a while to become yours (IE, an asset vs a debt).  

Hope that helps!