Over the last year or so, I have been soaking everything I can in real estate. I found a 4 bed, 2 bath house for sale in my hometown FSBO for $45k. I am confident I can get it even lower. That being said, I have not yet seen it, so I am not sure what it really needs at this time. I have 13-18k to spend on downpayment and rehab without taking out a loan.
What is recommended for getting finance help on BRRRR methods? All my lenders around here seem to be very strict on what they will give. Could I theoretically go conventional for more than asking and use the extra to reno?
I've bought two properties cash. The first property I used $60,000 of my own money, $25,000 in private money, and $18,000 in credit cards. When the rehab was complete I took a $30,000 loan with my bank to repay the private loan.
On the current cash purchase, I used $7,000 of my own money, a $25,000 private loan, and a $50,000 private loan. When the rehab is done, I'll borrow $140,000 to $150,000 on the property from a Credit Union.
In both cases, the underlying value of the home is greater than the loan I'm taking from my banks, but I've spent enough time talking with the people I know, that I know I can find private lenders when projects arise. You want to get comfortable with asking friends, relatives, and relatives of friends if they would consider loaning you money for a real estate investment. I've had to collateralize my loans with property, but that's the cost of business, and I'm confident in my numbers and work, so the rehab has always landed where I needed it to.
Offer high yield on loans, and if you need to broaden your network, the best question you can ask is, "Do you know anybody who would be interested in loaning money for a real estate investment?" Somebody always knows somebody, in my experience. Best of luck!
Hey Noah, sounds like you're ready to make the plunge. There is a loan type called FHA 203(k) that allows you to include repair/renovation costs into your loan. It is a bit more leg work with bids and submitting to the bank for draws, but it is one approach. Banks in some markets won't provide a loan for under $50k, so check around with a few lenders before you get too far. It wouldn't hurt to find some private money for this deal. Hope that helps!
@Noah Joseph Armstrong most (maybe all) lenders will not provide conventional financing if a property is not habitable.
You can search BP or google for short-term bridge or "fix-and-flip" loans. Interest rates are higher, but these types of loans provide financing for 3-6 months so you can complete the renovation. Once you place the tenant you should refinance with a conventional loan right away and repay the short-term loan.
Private money is another good option. If the rehab is ~$20k, you only need to raise $40-45k. Can you find friends or family that are willing to lend $45k for 3-6 months? You can either make them equity partners in the deal or pay them 10% interest ($2-3k if you hold for 6 months), or any number you agree on.
Do you think you can just get a mortgage for more than you're paying and pocket the difference?
@Noah Joseph Armstrong I'd focus on private lending with terms that make sense. $45K is really low and most lenders won't touch it. Sounds like a distressed property. A 4 bed 2 bath is going to take way more than $13K to remodel for starters. Don't get discouraged.
Get out and raise some money! There has to be someone you know willing to invest with you. Show them the numbers, comps, etc. and explain your investment strategy. You can make this DEAL happen if the ARV is good and it justifies the effort.
@Noah Joseph Armstrong are you working with a realtor? How long has this property been on the market? What do 4 BR / 2 BA properties rent for? How will you estimate the rehab costs? Do you have reserves beyond your 13-18k?
@Noah Joseph Armstrong My suggestion would be to hop off of the BRRRR strategy hype-train. In order to make something like that work you'd already need very strong financials in place, as well as a stellar credit history, which are the "strict" guidelines you're seeking to avoid. Considering you have roughly $15k liquid available, I would aim to simplify the entire process and focus on small flips for the time being. This will allow you to grow your capital considerably, while simultaneously making yourself a better candidate for conventional long-term financing. As for this particular property and with me not knowing where you're located, I would guesstimate the renovation costs to be $50,000+ at least. Your best bet would be to find a hard money lender and utilize your currently available capital, assuming you will have enough money left over to live on and cover your holding costs (primarily the HMLs monthly interest). Before you purchase anything with a hard money lender, however, I would absolutely suggest you have a GC in place who can handle the entire renovation for you unless you are absolutely confident in your ability to seamlessly manage many sub-contractors at once. Best of luck.