BRRRR strategy - Does credit score matter?

Question

I recently graduated from college and have become interested in applying the BRRRR strategy in the area around Louisville, Kentucky. I'm in the process of reading the BP books and still have a lot of reading/learning to do. With that being said, I have some questions about financing using this strategy. Are banks likely to finance homes with the intention of it being BRRRR'ed. Should I try and find partners to go in with me instead? Is establishing credit give me a better opportunity to gain credibility with banks when it comes to financing my REI's. What is the easiest way/useful tips, you guys have found to be useful when it comes to financing home using the BRRRR strategy.

To those who use the BRRRR strategy, what suggestions do you guys have for a newbie like myself. Any advice will help! I'm a sponge just waiting to absorb as much as information as I can.

Andrew Postell · Answer

@Ismael Candelario thanks for posting. I hope you continue to enjoy Bigger Pockets.

When starting out I feel that leaning on other investors is going to be your best asset.  Go to local Real Estate Investor meetings.  Continue to learn from other investors here. Anything that you can do to understand what goes into real estate will help you in your journey.

Now, the BRRRR method does have some very specific requirements to be successful when using this strategy.  Keep in mind that the BRRRR method helps us AVOID traditional financing. If you are a regular person off the street and you want to buy an investment property it is likely you will buy a home off the MLS while needing 15%, 20% or 25% as your downpayment.  So if you are buying $200,000 properties, and you have $100,000 in the bank....then you can only buy 2 properties?  And that's if you have $100,000!

So the BRRRR helps us buy properties with less out of pocket.

Generally speaking we target properties that are "off market".  That means you need to know how to find these types of "off market" properties.

Generally speaking we need financing to "Buy" the property.  We also need financing to "Refinance" the property.  So you'll need to know what you can qualify for.

In order to make our offer we need to know how to calculate "After Repair Value" - with help at first.  But you need to be able to learn how to do it WITHOUT help later.

You will also need to know how to calculate "Rehab" costs. Same thing here...maybe with help at first.  But you will eventually need to know how to do it without help as your career progresses.

Knowing how to calculate "holding costs" is also important.  This is the amount of money you need during the rehab phase...not to pay for rehab....but to pay the loan payment while your home is not making money. Your insurance, your utilities...anything that is a cost while you "hold" the property.

Now, formally, you don't HAVE to do anything of that...but it would certainly help a great deal if you did.  Hope this helps!

Ismael Candelario · Answer

@Andrew Postell Thank you for your advice. I think having a partner can make things go by much smoother. Having someone to go to for their advice/opinions on the matter would help me out a lot, especially since I'm just beginning. I agree that I do need to be around it more than I currently am at the moment. I will definitely be taking action when I have the opportunity.

@Raphael Collazo That's awesome to hear. I lived in Phoenix my whole life prior to coming to Louisville. I thought about staying in state but I was fortunate enough to have the opportunity to play collegiate soccer and so I did. That had been a goal of mine since I started playing.

I am currently back in Phoenix visiting family so I won't be able to attend the meeting tonight. However, I will be attending that meeting from now on now that I know about it. Thank you for the invitation. I had been looking for local events to attend and I'm happy you reached out!

Raphael Collazo · Answer

Hey @Ismael Candelario!

Welcome to the BP community! I see you grew up in the Phoenix area. I went to high school in Southern AZ (Sierra Vista) and graduated from ASU. I loved my time in Phoenix and I still have many friends there. I've lived in Louisville for just over 2 years and have found the investor community to be extremely vibrant. I agree with @Andrew Postell recommendation of attending local investor meetups. Meeting investors who are actively engaged in the community affords you the best opportunity to learn and grow.

If you're free this month, you should stop by the investor meetup hosted by myself and my friend @Luke Neubauer. The "Louisville Real Estate Investor" meetup group meets the last Wednesday of every month at the Manhattan Project restaurant. As part of the meeting, we network with other like-minded investors and host speakers who talk about topics related to real estate investment. This month, Tyler Chesser, one of Louisville's top commercial brokers and a fellow investor, will share his story of why he got started in real estate and how he maximized his performance through personal development and growth. We usually have a great mix of both newbie and experienced investors in attendance. Here's the link from the "Events and Happenings" page of BiggerPockets:

https://www.biggerpockets.com/forums/521/topics/800304-peak-performance-in-real-estate-w-tyler-chesserAlong with that, one of the nation's most popular investor groups, R.E.I.A (Real Estate Investor Association) has chapters in most major US cities. Our local chapter has over 700 members, many of whom are extremely active in the market and have a wealth of knowledge they're willing to share. They usually meet on the last Thursday of the month at Wood Haven Country Club. Hope this helps.

All the best,