Bronx, NY · Member since 2016 · 50 posts · 32 votes
Hi everyone :) someone may have already asked this question so please link the thread below if so.
What is the best way to finance a BRRRR in your opinion? HML? Private money?
I was leaning more towards HML but I'm worried about not having the required personal funds to use it to pay for: points, interest and origination fees. Does someone have a ratio perhaps of if they are borrowing X amount from a HML, they make sure they have Y amount in their own cash reserves to account for these costs? (On top of whatever % LTV they need to pay to use HML in the first place).
Hi Mary, I think most people try and use their own funds for the Buy and Rehab part of the BRRRR strategy. If you use a HML/private money it's typically temporary to cover the Buy and Rehab part. Also, if you're just starting out, they're probably going to be very skeptical of you since you don't have a track record which puts their money at risk.
Anyway, here is a recent example of something I did. I had a HML cover $64K for purchase at 12% and 2 points. It was a 120 day loan. They would have loaned up to 75% of arv ($85K) to help with the rehab, but I didn't take it. Anyway, I used my own funds for the rehab, then took if to a portfolio lender and refinanced it at 75% LTV for 5.25% for 20 years (5 yr arm). At close, the lender paid back the HML and I received the balance.
Hey CJ- thanks for breaking down your numbers for me. I think I'm also a bit skeptical with HML because I'm in an area where even crappy properties are in the the 250-300k + range, not also including the rehab. I know Brandon always says everything is relative but it's a bit scary to think about borrowing that amount of money with such a high interest rate.
Hi Lee- I agree with you. I think using my own funds would prove to be a lot safer and just pay myself back on the refinance. I think my best bet is to simply save my money and wait til I can use my HELOC on my current property. I guess you can say I'm a bit antsy to get started but I think in the long run, saving for an extra year or
two in order to be able to use my money will be worth it.
Hi Mary, I think most people try and use their own funds for the Buy and Rehab part of the BRRRR strategy. If you use a HML/private money it's typically temporary to cover the Buy and Rehab part. Also, if you're just starting out, they're probably going to be very skeptical of you since you don't have a track record which puts their money at risk.
Anyway, here is a recent example of something I did. I had a HML cover $64K for purchase at 12% and 2 points. It was a 120 day loan. They would have loaned up to 75% of arv ($85K) to help with the rehab, but I didn't take it. Anyway, I used my own funds for the rehab, then took if to a portfolio lender and refinanced it at 75% LTV for 5.25% for 20 years (5 yr arm). At close, the lender paid back the HML and I received the balance.
Thank you for sharing about a recent experience! The steps are well explained for how someone could go about the BRRRR process. Did you complete this deal during the pandemic? Will you stick with the ARM loan throughout the entire term?
@Mary Baccellieri - delaying getting started is costly. Is there a way you could buy a stabilized value add property, like a property with upside, so you don't have to wait. BRRRR is really overrated in my opinion and this is coming from someone who did a bunch of BRRRR deals to get started. I still flip and develop. So it's not like I'm scared of rehab. It's just that stabilized value add has so much less risk and the exact same result.
It's pretty refreshing to hear someone say BRRRR is overrated actually haha. I feel like it sounds very great on paper but when it comes to execution, I just have a lot of apprehension and areas of what could go wrong. I know BRRRR can build you up quick I'm also okay with not having a huge portfolio and I'm not looking to "quit my day job."
An option for me would also be to buy something on the cheaper side that needs work but not so much work that it’s not livable and the bank won’t give me financing. Is that what you are referring to doing? I’m also not afraid of a rehab, especially if it’s something primarily cosmetic. I fortunately have a go-to handyman that I can rely on.
Hi David - I haven’t really given that much thought yet. I know investing out of state in low priced markets can be beneficial for me (especially on a NYC salary) but I know it’s crucial to build relationships with agents who know the areas well and build up my core four team. I think i would need to speak to more people who have successfully executed out-of-state investing before I explored that.
@Mary Baccellieri - Bingo. Exactly what I'm talking about. Fixer you can add value to but stabilized enough that you can get bank financing. Once you have added value you can refi - in a few years or whenever you want. BRRRR only works on highly distressed properties. You're in them all cash or, even worse, hard money. Things go wrong, project runs over in both time and cost. All for what? You can get the same result on a slower timeline. When I started I really didn't have much capital so I was sold on BRRRR. Now that I've done a lot of them guess what I buy? Stabilized value add. It's not because I can't do BRRRR it's that I choose not to do BRRRR after doing it. I will publically state that BRRRR is overrated and I advise new investors against it in most cases. Not all of course, it's right for some folks.
Thank you so much for this advice Lee! I honestly have not thought about that as a possibility but you’re right, I can eventually refinance and pull my money out to reinvest but there’s a lot less pressure because I’m not dealing with buying a house, rehabbing, renting and then refinancing all within a 6 month time frame - talk about stressful haha. The fact that I will be using my own funds (aside from bank loans) makes me a lot more comfortable too.
I'm halfway through David Greene's BRRRR book and there are definitely a lot of tips in there that are still applicable and like you mentioned, adding value through adding bedrooms, bathrooms, kitchen and bathroom upgrades.
@Mary Baccellieri I am in a similar situation as you, I live in Austin TX and this market is crazy expensive. Not quite as bad as NYC but pretty close :) I spent at least 3 months researching different markets and got tired of reading and not taking action. I decided on Birmingham AL and just started reading every thread in the subforum for that market. I made a list of each realtor/PM/insurance agent that was referred the most by the people in the threads and started making calls. It only took me about a month to purchase my first property through a wholesaler and we are working on getting it rehabbed and put on the market in the next few weeks. I got really lucky so far, am definitely happy with all of the contacts I have made so far. I flew there last week to meet the PM and look at the property and spent about 3 days doing nothing but driving around the neighborhoods. I still have a long way to go though. BUT, Im happy with how things have turned out so far.
Wow!! Thanks for sharing that. It's amazing how things unfold once we start taking action. I know part of me not exploring the out-of-state investing is also because I know it takes work and effort to do the research to find the team members. You were willing to put in the work and now it's paying off for you, which is awesome !! Are you doing a BRRR deal? Or because the properties are so cheap, you're able to use personal funds?
@Mary Baccellieri it was crazy how fast things fell into place once I kept up with the action. The money is coming from a HELOC I took on my primary residence. I closed on my first property a few weeks ago and hoping to get as close to a BRRRR as possible. I am waiting for the 6 month seasons to refinance into a 30yr. I just found another property I am looking at purchasing where I will use private money to fund the purchase price and use my HELOC for the rehab. The strategy is to recycle the HELOC funds over and over as many times as possible.
That is awesome!! So happy for you and that it's all coming together. I'm sure the next deals will go even smoother now that you've built your team. I just bought my first fourplex last year so I don't have quite enough equity to do a HELOC right now but eventually that will be my goal; buy and rehab using my own money and the HELOC, refinance and pay the HELOC off. Fortunately for you and I, our houses are in areas that appreciate well :)
Thank you. The rehab was done right before the pandemic hit, but the refi just closed last month in the midst of the pandemic (portfolio loan). The 5 yr arm is for the 20 yr term on my refinanced loan (if that answers your question?)
@Mary Baccellieri Here is a guide to help you choose your own financing adventure (with the pros and cons of each). Personally, I use HML and then refi conventional or commercial.
Same boat, NYC resident, well paying W2 job, but nowhere near enough capital or risk tolerance for the cost here.
I’m very new, just in the learning phase but a friend who started taking action already has one flip under his belt in NJ.
I’m researching markets in southern NJ now and Philadelphia area, it’s close enough that it doesn’t really deal long distance, but far enough to get away from the NYC market.
@Mary Baccellieri out of state investing is not as difficult as it sounds. Homework on the location, be comfortable with the location, numbers must make sense and yes as you said foot on the ground is good to have but major necessity All depends. You can reach out for more info, if you need. I live in NY and currently invest out of state. Not claiming to be an expert but So far so good.
I'm doing my first BRRRR in Indiana. The math says I should get about 90% of my money back. I have a great realtor. I think my contractor and PM are also top notch, but haven't gotten far enough in to know for sure. Lending is still a work in progress. If you're interested in Indiana DM me and I'll pass along the names.
Well I was thinking of flipping a duplex or triplex and living in one of the units. I want to move near my parents in NJ (Monmouth County area). The issue with that area is houses are already pricy and it’s not a very renter friendly area unless I go a bit more north towards South Amboy/Perth Amboy area.
Yep! NYC is so expensive that even just to do a flip, it takes a lot of money to purchase a crap house, never mind the rehab portion on top of that. I listen to a lot of the BP podcasts and it seems people like doing BRRRR deals in that Philadelphia/Southern Jersey area. I really haven't looked into too much but maybe I should consider. I'm looking to move closer to my parents in Monmouth County in about a year so maybe I should explore the Southern Jersey option! (Won't have to pay a bridge toll to check in on my property ;) )