Loan type for 4 plex purchase and rehab???

Question

I have my eye on a 4 plex I'd like to buy, renovate, rent, and hold.

What kind of loans are best for this?

4-Plex details:

-currently occupied

-estimated sale price 265k

-ARV 400k, and 4k/mth in rent

Background on me:

-I have an LLC

-I own 4 single family rentals

-each has around 70k + in equity

-all cash flow well

-credit is 800+ with adequate income.

If yall were me, what loan options are best to buy, rehab, and rent a 4 plex?

Daniel Baccarini II · Answer

I'm not sure what your local options might look like with a small community bank or a credit union. Depending on your tax returns, that might be an option. Pros- the loan costs for this will be less, depending on their underwriting approach (creativity and aggressiveness) then they might do the first-year interest-only allowing you to rehab and put in long term financing without having to refinance. Cons- depending on your personal financials, qualifying might be more challenging and the loan might not amortize over 30-years.

Another alternative would be a business-purpose rehab loan (fix and flip/fix to rent). Even though it is a 4-plex, it still falls in the same bucket with similar loan structures as if you bought a single-family rental. Depending on the rehab budget, you would be looking at up to 90% of the purchase price, 100% of the rehab, capped at 75% ARV.  Pros- flexible underwriting criteria that will only look at the transaction and less at your personal financials. Cons- the loan costs will be higher, the loan will have a max one year term, and you will have to refinance.

The flip side of having to refinance is that you will be able to use the equity that you build in the property through the renovation to pay for the loan costs and possibly pull some cash out.

River Sava · Answer

Hey Marshall - A rehab and refi could be a great approach here, especially if you’re looking to increase the property’s value before holding it long-term. Given your strong credit, rental experience, and the equity in your existing properties, you’d likely have some solid options.

Sent you a dm as well to connect!

Noah Wright · Answer

Could always buy it on a DSCR loan at like 6.25% and cover the renovation out-of-pocket. Otherwise you're looking at like a 8.99% 12-month bridge loan if you want to fund the construction piece too. LMK

Jacob Sherman · Answer

best would be the fix and flip loan to then refi and hold after renovations are complete

Matthew Crivelli · Answer

BRRR - Start with a hard money loan for the initial purchase and rehab, then refinance into a 30Y loan once completed. This is how the majority of investor are handling rehab projects. Reach out, I'm happy to price the loan out for you. @Marshall Smith

Trevor Finn · Answer

Nice find @Marshall Smith on that 4-plex! Given your experience and strong financials, you have some solid options:

• Commercial or Portfolio Loan: These are tailored for investors and can help you avoid personal guarantees, especially since you have an LLC.
• BRRRR Loan (Buy, Rehab, Rent, Refinance, Repeat): Some lenders offer BRRRR-specific loans with funding for purchase and rehab, allowing you to refinance based on the new ARV once stabilized.
• HELOC or Cash-Out Refi on Current Rentals: Tap into the equity on your single-family rentals to secure funding for the 4-plex purchase and rehab without high origination fees.

Each has pros depending on your cash flow goals and timeline. DM me if you need assistance finding a lender!

Robin Simon · Answer

Hi - I wrote/published an article on this exact topic right here on BiggerPockets Last year, sharing link, hope it helps!

https://www.biggerpockets.com/blog/brrrr-loans-what-are-the-...BRRRR Loans: What Are the Options, and How Do DSCR Loans Stack Up?

Logan Lambert · Answer

Hey Marshall,

I would consider going the BRRRR method. Have you connected with any lenders yet to get you terms?

Zach Edelman · Answer

Could do a hard money loan (fix and flip/hold), into a DSCR loan with a cash-out refinance. This seems like a great candidate TBH.

Erik Estrada · Answer

I would look into a short term hard money loan to finance both the purchase and rehab, and then refinance into a long term conventional or DSCR loan. Based on your experience, you could qualify for 90% of the initial PP and 100% of the rehab assuming this is a light rehab.

Most HMLs will want to see that you have similar rehab experience on the 4 renals you own and will lend up to 70-75% of the ARV.

Loan type for 4 plex purchase and rehab???

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