How do you apply for construction loans with little money?

[Jourdan Mercer]

How do you guys apply for construction loans on BRRRR properties if you're limited on funds?

I have about $30,000 for reserves and can only get bank approved for upto about $300,000. Does anyone have any suggestions on how I should go about getting a BRRRR property and applying for a construction loan?

I'm a licensed builder, I live in Massachusetts and would like to do as much of the work myself as I can reasonably do.

[Jay Hinrichs]

Money partner.

[Corey Mitchell]

One approach might be to place a mechanic lien on the house in which the laborers would be paid after closing. The loan would essentially be directly with the company providing service to be paid upon sale or maybe even via installments. This may need legal review and most certainly full disclosure; but with a trust worthy business relationship it could be an option. 

[Andrew Postell]

@Jourdan Mercer ok, this piece is CRITICAL to your success.  

Many investors use "Hard Money Lenders" (HML's) for most of their acquisitions. The reason we use HMLs is because they can lend us up to a certain amount with NO DOWNPAYMENT REQUIREMENT. For example, if you are qualified with a HML for up to 75% of the After Repair Value (ARV) that would mean you could BUY and REHAB a property as long as you purchased it and fit in all the rehab into 75% of the ARV.  That is easier said that done of course but $30,000 is PLENTY of money to purchase your first property as long as you are working with the proper lender.  And this is where having the proper lender really makes a difference.

Some HMLs will NOT lend 75% of the ARV. Some will have this strange formula of 100% purchase price and 80% of the rehab, not to exceed blah, blah, blah of the ARV. Those types of lenders WILL require a downpayment.  So make sure you are working with HMLs that will allow the full amount of 75%.

Also, sometimes a HML might say something like....well, since this is your first deal, we'll limit you to 70%. That might be fine as long as they will lend you 75% on your next property.

And since you are a licensed builder you should be able to do the work yourself.  That is, as long as you have the proper insurance and work history...which I would imagine you do.

I hope all of that makes sense. 

[Jay Hinrichs]

Quote from @Corey Mitchell:

One approach might be to place a mechanic lien on the house in which the laborers would be paid after closing. The loan would essentially be directly with the company providing service to be paid upon sale or maybe even via installments. This may need legal review and most certainly full disclosure; but with a trust worthy business relationship it could be an option. 

reality is there are very few contractors out there that will wait to get paid  However since your the GC  and there is a chance some of your subs would go for it.. but U still have to convince a lender.. I am certain a lender is not going to allow mech liens.

[Jourdan Mercer]

@Andrew Postell

Thank you very much.  That makes sense.

[Eliott Elias]

Use hard money on the front end, and refinance with DSCR

[Lien Vuong]

Owner occupied loan is a good option if you plan to hold it and BRRRR with limited funds.