4-Unit BRRR - Auburn - Financing/Deal Structure Advice

Sacramento, California
BRRRR - Buy, Rehab, Rent, Refinance, Repeat
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4-Unit BRRR - Auburn - Financing/Deal Structure Advice

Dylan Thinkers
Member since 2021 · 3 posts · 2 votes

Hi All,

We are evaluating 4-unit building in Auburn, CA. The property is in pretty rough shape so we're planning on renovating before renting. My investing partner is a GC. This is our first investment together so we're exploring financing options.

Wondering if anyone has trusted contacts in private lending/hard money who are able to fund ~$400k in acquisition cost and ~$250-300k in repairs? We anticipate a post renovation value of ~$750-800k. Market 1bd rents are about $1500-$2000.

Ideally, we would have 24 months to get thru plans/engineering/permits/renovation. After that we plan to refinance into a conventional loan. 

Also, wondering if folks lend with the ability to only pay interest on the "drawn" funds during each payment to contractors? It would be a shame to pay interest on the entire amount, if only part of funds are deployed.

Thanks in advance for any tips on things we should look out for in loan terms, refinancing, etc!

Dylan

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Erik EstradaBusiness Member
Lender · Member since 2022 · 6k+ posts · 1k+ votes
1y
Quote from @Dylan Thinkers:

Hi All,

We are evaluating 4-unit building in Auburn, CA. The property is in pretty rough shape so we're planning on renovating before renting. My investing partner is a GC. This is our first investment together so we're exploring financing options.

Wondering if anyone has trusted contacts in private lending/hard money who are able to fund ~$400k in acquisition cost and ~$250-300k in repairs? We anticipate a post renovation value of ~$750-800k. Market 1bd rents are about $1500-$2000.

Ideally, we would have 24 months to get thru plans/engineering/permits/renovation. After that we plan to refinance into a conventional loan. 

Also, wondering if folks lend with the ability to only pay interest on the "drawn" funds during each payment to contractors? It would be a shame to pay interest on the entire amount, if only part of funds are deployed.

Thanks in advance for any tips on things we should look out for in loan terms, refinancing, etc!

Dylan


 Hi Dylan, 

Despite the tight profit, assuming the property can debt cover at a 1.10 ratio, you should be able to get a short term bridge loan up to 70% ARV, which would be a $560,000 total loan amount. You can still do 15-20% down on the initial purchase price, however given the tightness of the deal, you might not be able to finance all of your proposed renovations, unless you cut the budget.

You also will need to show similar rehab experience in the area in the last 36 months. If your GC is open to be a personal guarantee, this could possibly work. 

[email protected]818-269-7983
LuxePrivate Investments LLC 572 Reviews
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  • Jaycee GreenePro Member
    Real Estate Consultant · St. Louis MSA · Member since 2024 · 3k+ posts · 727 votes
    1y

    Hey @Dylan Thinkers, welcome to the BP Forum! These numbers seem pretty light on profit. What are you estimating as your return on this project?

    [email protected]
    0Reply
  • Erik EstradaBusiness Member
    Lender · Member since 2022 · 6k+ posts · 1k+ votes
    1y
    Quote from @Dylan Thinkers:

    Hi All,

    We are evaluating 4-unit building in Auburn, CA. The property is in pretty rough shape so we're planning on renovating before renting. My investing partner is a GC. This is our first investment together so we're exploring financing options.

    Wondering if anyone has trusted contacts in private lending/hard money who are able to fund ~$400k in acquisition cost and ~$250-300k in repairs? We anticipate a post renovation value of ~$750-800k. Market 1bd rents are about $1500-$2000.

    Ideally, we would have 24 months to get thru plans/engineering/permits/renovation. After that we plan to refinance into a conventional loan. 

    Also, wondering if folks lend with the ability to only pay interest on the "drawn" funds during each payment to contractors? It would be a shame to pay interest on the entire amount, if only part of funds are deployed.

    Thanks in advance for any tips on things we should look out for in loan terms, refinancing, etc!

    Dylan


     Hi Dylan, 

    Despite the tight profit, assuming the property can debt cover at a 1.10 ratio, you should be able to get a short term bridge loan up to 70% ARV, which would be a $560,000 total loan amount. You can still do 15-20% down on the initial purchase price, however given the tightness of the deal, you might not be able to finance all of your proposed renovations, unless you cut the budget.

    You also will need to show similar rehab experience in the area in the last 36 months. If your GC is open to be a personal guarantee, this could possibly work. 

    [email protected]818-269-7983
    LuxePrivate Investments LLC 572 Reviews
    WebsiteView Page
    1Reply
  • Greg Kasmer
    Rental Property Investor · Philadelphia, PA · Member since 2021 · 774 posts · 501 votes
    1y

    @Dylan Thinkers - I would agree with Jaycee. The margins on the deal seem a bit tight. Did you arrive at your ARV of the quad by looking at comps? Also, at 250-300k in total each unit renovation must be 60-70k. Do you think there is a way to decrease those costs? Overall, it would be great to be "all in" (acquisition and renovation) for 75-80% of ARV from the onset as you know there will be some issues/challenges that you'll have to contend with along the way. Good Luck!

    1Reply
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