Finance BRRRR? Owner finance + rehab loan or single loan

4 Replies

I am looking to BRRRR a sfh. The numbers look good assuming I can negotiate the right price. I am certain I can get owner financing. The owner has 100% equity and is not living in the home. She is just paying taxes and insurance on it while it declines. Would I be wise to go for owner financing and arrange a separate rehab loan or look for a single loan for purchase and rehab? Would it be common for a rehab lender to take a second position on the mortgage? Is there a better approach?

Most lenders will not want to take second position. That being said, sometimes you negotiate better terms with an owner carry than you can with a bank. At least you have opportunity to negotiate! Then you can you pull a HELOC, which would take second position anyway to finance your rehab.

@John Thomson It depends on what the seller wants and the "rest of the story". Why is she holding onto it? Dig in on that? If she's scared of a capital event, maybe give her two offers: 1. A simple seller-financed offer (creating some equity bump or bonus for her for the risk). 2. A HML or PML loan packaged.

Here's a "choose your own adventure" guide to BRRRR financing in case you go with option 2.

@Sarah Brown

I'm not sure how the HELOC route would work. If I am at 70 to 75% of ARV less acquisition costs and repairs, it doesn't seem like there would be much room left for the HELOC. Based on my own market analysis, I expect an ARV of $180,000 to $185,000. The slab is cracked and there is some settling in one corner. It seems stable but I will have a structural engineer and foundation repair contractor look at it. I'm putting $20,000 into my numbers for just that but we'll see what the experts say. The three bathrooms are from 1966 and in rough shape. The kitchen had a recent update but could use new appliances. The boiler and central air conditioning unit should probably be replaced. There are some other cosmetic improvements I'd like to make. I'm making a middle of the road estimate of $68,000 to $70,000 for the rehab and acquisition cost. So, say I get the place for $65,000. What would value would be used for the HELOC?

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