How do you fund your next deal when your capital is tied up until refinance?

[Elliot Angus]

Hey everyone,

I'm looking for advice from investors who hit the scaling wall early on.I'm on my third BRRRR and running into a timing issue with capital that I'm sure others here have dealt with.

Here’s my situation:

All-in on my current BRRRR: $260,000

Expected ARV: $325,000

A 75% LTV refi will return about $243,000, so I'll still have around $17,000 tied up

I’m not expecting (or looking for) a perfect 100% cash-out. I fully expect to leave some money in deals which I’m comfortable leaving $20K–$30K in a house if the long-term numbers make sense (which my current 2 do). However my challenge is that I am not able to refinance until April/May, but I want to acquire my next property around February

For context, I funded my first two BRRRRs by raising money from family, but I’d like to avoid going back to the same group unless absolutely necessary. My question to the community: How did you fund your next acquisition when your cash was temporarily tied up in a BRRRR and you were waiting on the refinance?

Curious what has worked for others in this position: Short-term private lenders to bridge 2–3 months, Hard money lenders that require very little cash to close, Using existing equity as cross-collateral, Business/personal lines of credit, Or simply waiting until the refi is done before buying again

I am trying to keep momentum and stay on pace for 2–3 homes per year, without overextending. I would appreciate hearing from investors who’ve been through this exact bottleneck.

Thanks in advance!

[Don Konipol]

Quote from @Ken M.:

Quote from @Elliot Angus:

Thanks. Maybe I need to look deeper into hard money options. I understand creative financing would work, but in my market very few sellers are in a position where they can agree to terms that make it workable. It feels too irregular to rely on as a scaling strategy, so I don’t think creative finance is the solution for this specific bottleneck. Hard money might be the more predictable route for bridging the gap.

When you make an extra $60,000 for each creative financing deal, instead of losing $10,000 in fees for Hard Money for each deal, well If you can't do the math . . .  good luck. See you on the by-ways.

Restricting your game plan to CREATIVE finance deals limits the universe of real estate open to you to a small minority of properties in any given market while being able to deliver cash to the seller opens all properties for sale, and many that aren’t as potential purchases. 

I have found that the best way to obtain the LOWEST price is to be able to offer all cash, with a quick close, and few contingencies, IN MOST CASES. 

BUT, the lowest price isn’t the only criteria or way to make money.  I’ve made more money on TERMS of a purchase than I did on PRICE. 

Back a couple of hundred years ago when I was dealing in SFR, I bought a couple tons of houses with 90% seller loan carry back at ZERO interest on the loans!  I made sure these loans were “assignable” (no due on sale clause).  Having 90% NO QUALIFYING financing attached to the property enable me to sell these puppies for 35- 55% above my purchase price.  Often I’d “wrap” the note and earn the difference on the principal between 9 - 12% interest and 0 %.  On a $200k note that’s $20k per year - for as long as the buyer didn’t refinance.  The average was 7 years - heck I could sell these puppies property for $20k less than I paid and make $140k in interest differential and still have a $120k profit over 7 years.  

“Creative financing/ Creative purchasing / Creative selling” CAN (with the right knowledge, experience/ ability) be the MOST powerful wealth accelerator in real estate investing.  What you have to be willing to do is present these deals to sellers - and expect to be turned down - often rudely - a majority of the time.  These deals aren’t advertised as such; they are CREATED by the real estate investor.