I'm currently in the very beginning phase of how I should approach making an investment in real estate. My initial cash investment would be conservative so figuring out how that will limit my options for available properties and location in Philadelphia. My first task at hand is understanding possible lending options that would be available to me based on type of property and location.
The type of investment I'm looking to make is buy and hold. Pretty much following the BRRRR methodology.
I'm not looking for anything that would require major rehab (150-160k). Since I feel that my price point would be on the lower end, I feel that its inevitable some rehab will be required. I figured the conventional loan would be the way I will be going. However, my only issue is understanding how to receive enough through the loan if the property requires rehab? I assume the loan would be based on value of the property at its current condition rather than after repair value?
Any advice on the best place to start would be greatly appreciated!
@Alex Michael Hello Alex, if you are looking to follow the BRRRR methodology then a conventional loan will probably not be feasible. The reason is that a regular lender usually does want to finance an investment property that needs a lot of work. My advice is to do a hard money loan for the BRRRRR and refinance it with a conventional loan. Either way, make sure your credit score is good, and your DTI is also good.
I suggest you start talking to lenders that focus on BRRRR properties and investors. They can help clarify this. Hope this helps!
@Ramon Flores Thank you. Do you have any experience in the Strawberry Mansion area? A few people I'v spoken with have mentioned it for good cash flow?
@Ramon Flores makes a good point. In order to make the numbers work with using BRRR you'll need to force the appreciation pretty significantly whether that's through being able to negotiate a great price on a property in good shape or through doing repairs. So using conventional may not get you where you need to be but the possibility still exists.
Since you're also looking to finance rehab costs, hard money also has the capability to finance all or some of your rehab costs. You're going to pay more for hard money but that's the price you pay for not putting much of your own money into the deal. Good luck!
@Alex Michael Hard Money is definitely an option and one that many investors go with. Although Hard Money can be expensive, as long as your ARV is a good amount over your all-in number (cost of acquisition + rehab cost) you should fare well. However, there are also lenders out there that are a hybrid between traditional mortgage loans and hard money -- less expensive than hard money, but a bit more strict with their approval process. Spring Garden Lending is a good example of this - https://www.springgardenlending.com/
There are renovation loans available that you can use for the first few properties.
Are you intending to owner occupy or strictly a rental? HomeStyle is one of these options.