BRRRR Finance Options-Which Product or Methods are out there?

Question

$50k purchase price, $7-10k in repairs. Cash Purchase and Cash Funded Repairs. Market rent $800/Month. Currently unoccupied.

Looking at purchasing and doing repairs within 1st Month and then finding a tenant(2-6 weeks) and then seasoning the property for 4-6 Months before applying for financing. Prefer to be able to use a new appraisal instead of "Cost" for Financing. New Appraisal should be in $70-75k range

2 Things I have questions about:

1. are there DSCR Loans for a small loan amount such as this? What are the usual LTVs on these smaller loans?

2. Is it usually a 6 month seasoning before being able to go for new appraisal and getting financed based on the ARV rather than cost.

I've done a lot of reading and from what I understand this is possible, just looking for verification, recommendations on path forward or alternate plan, and also some lender referrals for when this takes place.

My REI experience and financials are "good to very good" when it comes to the basic DSCR requirements.

Robin Simon · Answer

Your issue is really going to be loan size here, that dollar amount is likely to be too low for both reputable DSCR Lenders and even Hard Money Lenders.  Generally you want to get to at least $100k in loan amount with $75k absolute lowest for both hard money and DSCR - probably your best bet is to finance with cash or private money investor/partner on the first few projects until you build up enough capital to get to those higher amounts

PS - you mentioned a lot of reading and learning on this, on the chance you didn't see this article, check this recently published BiggerPockets piece I did on your exact topic - Pros/Cons/Options of financing BRRRR strategy

https://www.biggerpockets.com/blog/brrrr-loans-what-are-the-...

Jake Baker · Answer

@Nicholas Toti

Yes, DSCR loans for smaller amounts exist with LTVs around 70-80% but it is not typical for most lenders. They will generally lower your LTV in this case. Typically, there's a 6-month seasoning period before obtaining a new appraisal for financing based on ARV, but there are some that will do 90 days.

Kyle Spearin · Answer

@Nicholas Toti with a BRRRR, there are typically 2 different financing methods 1 when you buy and one when you refinance. For example, one way I've seen it done is to use hard money for the purchase and rehab. Once the property is appraised at a higher value, you could then approach a DSCR lender.

AJ Exner · Answer

Hey Nicholas,

There are a few that can refi at those smaller amounts, which is obviously really helpful because these smaller properties can still cash flow pretty well. Especially once you get a chance to build out a decent portfolio of these types.

6 months is pretty standard as well, but it would REALLY benefit to be up front with loan amounts, leverage, and seasoning requirements. With most lenders, just one of those is enough reason to say 'no' so as you begin working with any group, especially one that is unfamiliar, you will want to try to work through those implications ahead of time.

Just shot you a DM, would be happy to help if I can.

Thanks!

Nicholas Toti · Answer

Thanks for the responses!

Corby Goade · Answer

Welcome! BRRRR is my favorite, you are on the right track. A couple things to consider, in general:

The best pricing is always going to be a conventional loan, but there are terms that come with those that are less than ideal.

DSCR loans are private money- terms will vary depending on the lender and the deal.

To specifically answer your questions:

1. I am sure there are, it's a matter of making lots of phone calls and finding the right DSCR lender for you, Most conventional lenders won't touch anything under $50k, but you should be able to find someone who will do a DSCR on this.

2. It used to be six months, but it changed to 12 months last year.

So- the real question here is do you want the cheapest option (conventional, but you have to wait a year and it must be in your personal name) or the most flexible (DSCR, which can be done in a business name and generally at any point, but it will be more expensive.)

BRRRR Finance Options-Which Product or Methods are out there?

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