How To Use Hard Money In BRRR Strategy

Question

Hi,

I wanted to ask how you would go about paying a hard money loan back for the BRRR strategy.  Is it that you pay the hard money back once you have refinanced?  Can you please give an example?  Thanks.

Chris Seveney · Answer

Yes pay back at refinance. Let's say you buy for $150k and renovate for $50k. Your all in is $200k. You would get a fix and flip loan that would finance approx $160k of that so you would still need $40k plus you would pay around $2k a month in interest

once complete you refinance into a DSCR loan at 75% of appraised value. So if you added value and let's say it's worth $250k, you could refinance $187,500 and payoff off the hard money lender and in this case get back some of your investment

Treasa Manigault · Answer

Thank you all for responding.

Treasa Manigault · Answer

Thank you so much for this information.  I really appreciate the example.

Michael Hernandez · Answer

@Treasa Manigault, exactly — the hard money loan is just a bridge. You use it to buy and rehab, then once the property is stabilized, you refinance into a long-term loan. The new loan pays off the hard money lender, and you keep the property.

Example: You borrow $150k hard money to buy and renovate. After rehab, it appraises at $220k. A bank gives you a 75% LTV refinance ($165k). That $165k pays off the $150k hard money, covers closing costs, and if the numbers work, you may even pull some of your initial cash back out.

Bridget Brick · Answer

@Treasa Manigault You would need to do a DSCR Loan: cash-out refinance, based on the new ARV. Some lenders make you wait until you've owned it 6-12 mos. We have no-seasoning requirements, so as soon as your renovations are finished, we can start the process. You can borrower up to 80% LTV of the new ARV (value). With enough new equity, this should allow you enough money to payback the renovation loans and put some extra cash tax free in your pocket to fund the next deal.Let me know once your appliances are installed and it's rent-ready, and we can start the refi process for you.

Erik Estrada · Answer

Hi Treasa

Yes you pay the hard money lender at closing through the proceeds of a refinance.

Typically most long term DSCR  lenders will allow you to refinance 75% of the new appraised value with 90 days seasoning.

So say you bought a property for $100k and put $20k in rehab, assuming the ARV is $200k, theoretically you can do a refinance of of $150k after 90 days have passed from closing on the purchase of the property. Say you owe $90k on a hard money loan, after fees you would walk away with about $50-$45k cash out after closing on the refinance.

This would be capital you would deploy into another BRRRR

Treasa Manigault · Answer

Thank you so much.

How To Use Hard Money In BRRR Strategy

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