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.
Thanks for the link! Good food for thought.
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?