Best way to finance a BRRRR

BRRRR - Buy, Rehab, Rent, Refinance, Repeat

Best way to finance a BRRRR

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).

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Lee RipmaPro Member

Rental Property Investor · Prairie Village, KS · Member since 2015 · 2k+ posts · 2k+ votes

@Mary Baccellieri

Best ways:

1. 100% cash that’s yours

2. Private money cash

3. HML (distant 3rd, especially on your first one. Make sure the term is a year!)

Podcast Guest on Show #373

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Tyler RowleyPro Member
Investor · Providence, RI · Member since 2019 · 51 posts · 16 votes
6y
@Hadar Orkibi, can you explain your point about "whichever is lower"? I am losing you on that point. Thanks.

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Hadar OrkibiPro Member
Rental Property Investor · USA / NZ · Member since 2016 · 1k+ posts · 812 votes
6y
@Tyler Rowley the lender that is refinancing will not based the loan on the higher value.
Even if your ARV has say 50% manufactured equity over your cost, the lender will not lend to 70% of the ARV.
They will only lend you to the cost, which in that case is only 50% of ARV.
I hope that makes sense.
1 Reply
John Sanders
Insurance Agent · Locust, NC · Member since 2014 · 8 posts · 0 votes
6y
@David Chapoell
Exactly what I was thinking. Could even team up with experienced investors in other markets to further mitigate risk. I’m an investor in the Charlotte, NC area. More specifically in towns right outside of Charlotte where prices are still much more reasonable than in the city.
0 Reply
Logan Turner
Rental Property Investor · Dallas, TX · Member since 2015 · 283 posts · 179 votes
6y
@David Chapoell
Commercial lenders will refinance with NO seasoning and will refi based on the ARV (from a broker priced opinion vs a full appraisal)
This not only saves you $400-800 on the appraisal but also allows you to refi all of your money out.
This allows me to turn $120k 3-4 times a year, resulting in 3-4 houses.
So how do you do more? Find more private money. 600k is around 5 houses ever 3-4 months which is 15-20 houses.
Now I recommend increasing cash reserves as you grow and making sure each property makes sense as an individual rental. For me that is cash flow $200 minimum after all expenses on a 20 year loan.
It’s not good enough to just get all your money back. You also need to make sure the houses can perform well as rentals.
What your left with us 40-50k in equity, cash flow of $300 a month, debt pay down of $250/month and possibly some appreciation and tax benefits. And at the end of the day, all your cash still.
1. Must make good deals
2. Must increase cash reserves as you grow since this will be what gets you through black swan events like now.
People who have called many lenders that won't lend on ARV or have seasoning... keep calling. You choosing to give up just hurts yourself. There are plenty of banks that lend on these terms and still lend.
6 Reply
Todd Sullivan
Real Estate Agent · Chester, NY · Member since 2020 · 34 posts · 9 votes
6y
@Lee Ripma

Okay! That's makes perfect sense. And yeah, I can see the upside to that vs a house in such poor shape you have to finance the whole thing. Thanks for the info!
1 Reply
Andrew McKinnon
Houston, TX · Member since 2017 · 38 posts · 19 votes
6y
@Emmanuel Depas would love to see how you’re utilizing OOS. I’m in Houston and looking at the Triad,NC area to invest and working on getting systems in place.
0 Reply
Stephen Bianes
Rental Property Investor · Austin, TX · Member since 2015 · 45 posts · 27 votes
6y
Originally posted by @Lee Ripma:
@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.

Hey Lee what's a stabilized value add? Thank you!

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David Chappell
Austin, TX · Member since 2018 · 164 posts · 107 votes
6y
@Logan Turner that helps a ton thank you. As a new investor, do you recommend me maxing out my # of conventional loans/mortgages or going straight into commercial lending? Are the rates in commercial a little higher than personal?
0 Reply
Nate Morris
Investor · San Jose, CA · Member since 2017 · 33 posts · 9 votes
6y
@Lee Ripma
Great comment. I have been doing smaller MF value add and looking to transition to larger stabilized reposition... appreciate any thoughts on the keys to increasing rents when the property is already fitted with laundry hookups and in decent condition.
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Eric GoldmanBusiness Member
Lender · PA · Member since 2019 · 359 posts · 192 votes
6y
remember that this is temporary money, so rate might be high. the fees and down money expect to put 20% of your own money for the purchase and about 4% toward other fees. there are two ways. lower interest higher fees, or high interest low fees. expect to put in 24-25%.
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Logan Turner
Rental Property Investor · Dallas, TX · Member since 2015 · 283 posts · 179 votes
6y
@David Chapoell 1 point higher, shorter Am period.
There’s pros and cons to each. If you have a well built system then don’t slow down with conventional. If you don’t have great deals, great contractors and huge demand for your rentals then wait and get the best financing. But again, if you have the system, you can get 3-4 houses vs 2 per year.
Those houses more than make up the increased cash flow on conventional.
I’d say most people don’t have the system right away and that’s ok. Start with conventional as you look for the next great deal, and keep upgrading contractors. Usually at 3-6 conventional loans you’ll have it figured out.
1 Reply
Nicholas Madans
Los Angeles, CA · Member since 2018 · 24 posts · 7 votes
6y
@Lee Ripma Fellow LA MFR investor! While were are on the subject of BRRRR. Have you been successful finding any banks that are willing to do Cash- Out refis on investment properties at the moment? Even where I do my personal and business banking just gave me the red light and getting similar responses calling around all over. Thanks!
0 Reply
Melody Robinson
Member since 2020 · 8 posts · 4 votes
6y
@Emmanuel Depas
I’d love to chat with you about your out of state investing strategies!
0 Reply
Jason Meadows
Investor · Member since 2019 · 30 posts · 8 votes
6y
@Mary Baccellieri I'm at the beginning of my BRRRR journey in NYC too. Congrats on the house hack. Like you, I have a lot of reservations about HML given the high interest rates and seasoning periods before most lenders will refinance. Private vs all cash sounds smart. If your parents own in NJ, had you thought of partnering with them to get a big enough HELOC to start investing now?

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Jason Meadows
Investor · Member since 2019 · 30 posts · 8 votes
6y
Originally posted by @Lee Ripma:
@Mary Baccellieri
Best ways:
1. 100% cash that’s yours
2. Private money cash
3. HML (distant 3rd, especially on your first one. Make sure the term is a year!)

Love this. Where would you place HELOC in this hierarchy?

0 Reply
Mary Baccellieri
OP
Bronx, NY · Member since 2016 · 50 posts · 32 votes
6y
@George Patrick
Wow only $10,000 left in the deal is great. 70% ARV financing is really solid but I'm sure you have proved yourself reliable for that lender to be getting that sort of deal right? I don't currently live in the market that I want to invest in so I'm thinking about using the bank's leverage for my next property because I plan on living in it (will still shoot for a duplex or triplex to house hack). Once I'm in the area and settled, then I will look to find a mentor. I'm reading David's BRRRR book and he always talks about bringing value first and making yourself worth someone's time so I definitely agree with you there!!
0 Reply
Mary Baccellieri
OP
Bronx, NY · Member since 2016 · 50 posts · 32 votes
6y
@Logan Turner
Hey Logan - thanks for the input!! I agree - BRRRR is definitely the fastest method, especially if you do it right and end up with no money in the deal or even make some money if it's THAT good (and the monthly won't hurt cash flows too much). Where have you invested from afar? I agree also about having a solid team - I need to connect with people in the area I'm interested in and start building.
0 Reply
Mary Baccellieri
OP
Bronx, NY · Member since 2016 · 50 posts · 32 votes
6y
@Hadar Orkibi
Nice blog, thank you for sharing. And I love to see pictures of a rehab. Thanks!
1 Reply
Mary Baccellieri
OP
Bronx, NY · Member since 2016 · 50 posts · 32 votes
6y
@Jason Meadows
Hey Jason! Fellow NYC-er :) honestly, I don't feel comfortable getting involved with my parents and their home. They are very traditional in their views about home ownership. My plan right now is to purchase a second multi family property in NJ using bank leverage because I will get the benefits of living in the home. This will allow my current fourplex to cash flow even nicer than it does now (because the apartment I live in now will be rented out and I'm already cash flowing while living in the property). When I have 78% equity in my fourplex, then I can use my HELOC to do a BRRRR or a stabilized value-add for a third property. Haven't decided yet and I think I need to meet up with investors in the NJ area to pick their brains a bit :)
1 Reply
Melissa Bains
Member since 2020 · 16 posts · 2 votes
6y
@David Chapoell
I'm in Texas and was told by local lenders we can't get a HELOC only a home equity loan? Would you share the lender you used?
0 Reply
David Chappell
Austin, TX · Member since 2018 · 164 posts · 107 votes
6y
Hi Melissa! I was able to get my HELOC in March through BB&T right before everything went crazy. I can send you my bankers contact information if you want to call her and see if she can work something out?
0 Reply
Abiy Birhanu
Investor · Wylie, TX · Member since 2020 · 11 posts · 3 votes
6y
Pooling funds, partnering are also great ways to avoid the cost of loans entirely. I am open to explore opportunities to invest alongside fellow nestles where it makes sense.
1 Reply
Tanner Sherman
Real Estate Broker · Omaha, NE · Member since 2020 · 329 posts · 203 votes
6y
If you listen to Filipe's story from BP Rookie Real Estate podcast, he talks about working his butt off to pay cash for a house, utilizing a HELOC to fund the rest of his houses. I understand how necessary it is to use OPM, but I agree I am nervous and would rather fund the deal myself.
0 Reply
Mary Baccellieri
OP
Bronx, NY · Member since 2016 · 50 posts · 32 votes
6y
@Tanner Sherman
Yep!! I listen the podcasts a lot and that was a great story he had. I agree - I know that using OPM can accelerate your portfolio tremendously - but no reward without the risk that comes with it. I think because I am happy with my job and even more so now because I have transitioned to working from home full time (the one positive from COVID-19!), I will look to get a low down payment mortgage from a lender for a duplex or triplex and by the time i get settled with that house, I should be able to use my HELOC on my current fourplex and my additional savings to try a BRRRR out.
0 Reply
Lee RipmaPro Member
Rental Property Investor · Prairie Village, KS · Member since 2015 · 2k+ posts · 2k+ votes
6y
@Nicholas Madans-Right on, LA is a great market! For my new construction here I never forecast a cash-out refi, only a rate and term refi at 80 LTC, which is the existing construction loan.

For my Kansas City projects, I have to wait 1 year for a 75 LTV cashout. I actually just did one where I told them I thought the property was worth 300k and I was about 215k in. Well the appraisal came back at 380k and they would only give me 210k. So I think you have to be careful with a refi and knowing if you'll get LTC or LTV. On LTV they never want to give you more than you're all in. I'm doing this with LOCAL KC commercial banks with loans under 1M. My terms are 20 year am with 5 year balloon. I used to think you couldn't cash flow with 20 year ams but you 100% can.

Banks are certainly being more conservative now, making you have 6 months of reserves and put down at least 30%. I still have one in KC willing to do 20% down on new purchases. I'm holding my breath for a deal I'm under contract to buy, waiting for them to come back and say you have to do 25-30!

@Nate Morris - how do you increase rents on a property where the rents are already fairly high and amenities are already added? Well it's possible that there are diminishing returns on whatever you're going to do. You can upgrade and make the units premo nice - really nice laminate or engineered hardwood, tile in the bathrooms, cool light fixtures, quartz countertops, new appliances. There is a limit to where all those upgrades will get you through and be careful about overspending without a return. You can't get a crazy nice renovated unit to rent for more than market. Like if my market rent is 800 and I go in and put in all those primo finishes I could maybe get 850. Not worth spending 10k for 50/mo. Hopefully that is helpful!

Podcast Guest on Show #373
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