How do I get the third home?

5 Replies

Hello BP

I'm about to start investing in property and have a couple questions.

Putting my house up for sale soon in an active market.

Should clear about 200-250k on the sale, let's call it 200 for discussion purposes

I will then move to Virginia and begin investing.

My plan is to use the whole 200 and buy a house for myself to live in.

Then ask a bank to lend me %75 of that, 150k, to buy a house to BRRR.

1st question- Can I spend 100k on the house and use the other 50k for rehab?

Would prefer not to use the money I have saved in the bank.

I'll rehab the house and get it rented.

2nd question- How do I get the 3rd house?

The next step after is obviously refinance.

But didn't think the bank would lend you money off of borrowed money?

Thank you for the advise.

Question 1 yes, you can do whatever you want because you'll be borrowing against your primary residence.

Question 2 you refinance because if you spent $150k on this new house hopefully it will be worth at least that and hopefully more and would be free and clear in your scenario, so you mortgage it just as you did with your primary residence and continue.

You want to pay $200K cash, then get financing to pull $150K out?  Find out how much the bank will lend you, then look for two places that are less than that amount.  Use some of your $200K as the down payment for both homes keeping enough to do the renos.

When you move, you can find loan products that will allow 3-5% money down, if your goal is to pull as much as possible in a cash out refinance. The BRRRR process will typically require 20 to 25% LTV. So you must be laser focused, realistic and do a lot of homework on the ARV of the property you're BRRRR'ing. The ARV will make or break your deal. If your numbers work, you can get 100%+ of the money invested in your BRRRR deal to go ahead and do it again.

This is by far my favorite method to buy real estate. It's not a difficult process to understand however, the process can be complex. Each piece of the BRRRR has it's own level of complexity and can take a long time depending on circumstances. Having said this, you also want to be prepared to have your cash you put in the deal being held in a property until completion of the first three phases of BRRRR.

What are these complexities? Well for starters, if it's a multi tenant building and your goal is to rehab the property, it's important to check current leases. If the tenants are on an annual lease, and they still have 6 months it's going to be difficult to start rehabbing each unit. There are creative ways around this, one being offering options for tenants to agree to terminate leases early, etc but it's something to consider when analyzing these deals. Evictions also take time. Secondly, calculating the cost and time of rehab have it's own set of challenges. Finding contractors, getting estimates, knowing exactly what you need done vs what you'd like to have done in order to maximize each penny. Renting, Refinancing all have their unique challenges as well. 

It's undoubtedly one of the fastest and reproducible ways to gain wealth that I'm aware of and it's something that I think every investor should be doing. However, you should do a lot of homework scrutinizing each piece of the method in order to know you've got a good BRRRR deal.

Thank you for the great information.

It seems like manipulating the system to your favor, and it's completely legal.

I thought of one more step to bend the money.

Interview a contractor and ask him to do the work on my first rehab.

Also ask him to hire me as a Forman for the job.

I'll work on and oversee the job from beginning to end.

I can help with demo.

His guys and do the sheet rocking and painting, my least favorite jobs.

I can install windows and trim while his guys work on the floor.

Then I do cabinets while his tile people work on the bathrooms then kitchen.

The contractor can pay me $25 and charge me $40 or $50 an hour what ever he normally does.

I'll have to be paying someone to do the work, why can't it be me?

If I could work somewhere else and make more money I would.

I don't want to work in my current field anymore, hence the move to VA.

So rather then go look for a job, I'll create one for myself.

It's a way of getting around wanting to do your own work but you're not a contractor.

Or it would be cheaper to pay him a flat fee to work under his license

Figure out around how many hours I'll be working.

Plan on contractor making $10-20 hr off me.

12 week job, X's 40= 480 hours.

That's $5-10,000.

Maybe just offer him $4000 to let me work under his license on what I want.

Putting sweat equity into the house.

Just have to convince someone to take on my plan.

Eventually get my own contractors license and do less labor with my hands.

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