BRRRR with private money lender

11 Replies

Hello!

I am wanting to get some input on a deal that I am working on right now. Found a great deal I intend to BRRRR. I have secured private money. The property is a small condo that definitely needs some work but not a total but job. I have run the numbers and they look great! My question is when I finish the remodel within 3 months and get it rented how quickly can expect a bank to issue a cash out refi? At this point I would pay my private money lender back and move on to the next deal! Thanks for your input!

Be very cautious with condos - they are inherently difficult to finance, making many of them cash-only (or private mortgage) assets. You need to be absolutely certain going in that the condo is warrantable, which determines whether and how you will be able to refinance on the backend.

Not to mention the many other issues surrounding condos and HOAs: 

https://www.biggerpockets.com/forums/12/topics/849080-why-should-i-stay-away-from-condos

@Will Payne

I agree with @Jeff Copeland condos have many restrictions. Some limit how many can be rented. Read the bylaws for any unusual requirements. Don't forget HOA fees. Contact your lender in advance to make sure they are good to go.

@Jeff Copeland thanks for the response! All good things to consider. It turns out that this is a smaller development of condos. I personally know 2 of the 5 board members and plan on becoming a member myself. This condo is most definitely warrantable based on the description given in the article you posted. I will take your advice and go ahead and reach out to lenders regarding the refi! Thanks for all the good resources.

Will

Originally posted by @Will Payne :

@Jeff Copeland thanks for the response! All good things to consider. It turns out that this is a smaller development of condos. I personally know 2 of the 5 board members and plan on becoming a member myself. This condo is most definitely warrantable based on the description given in the article you posted. I will take your advice and go ahead and reach out to lenders regarding the refi! Thanks for all the good resources.

Will

Just keep in mind, it may be warrantable now, but what about 5 or 10 years from now when you need to exit? Board members change, owners change, and the economy changes - all of which can change the owner occupant percentage, the HOA's financial health, etc.

If you need to sell 10 years from now and it's no longer warrantable, you'd limit yourself to a pool of cash buyers.

Also, how much are the monthly HOA/Maintenance fees going to cut into your cash flow?

 

@Jeff Copeland I think you make some really good points. I guess as a board member myself and with two other board members that I am very close with I would be able to closely monitor that situation. At least the change in board members, the financial health of the HOA. Obviously I would have little control over the economy.

This is such a great deal that it would actually work as a flip. Instead of a quick turn around though I was planning on renting with a cash flow of $200 after all other expenses are accounted for including HOA, maintenance, capital expenditure, etc.

Would you say that you personally are never in favor of purchasing a condo in a BRRRR, or buy and hold situation?

Again thank you for these insights!

Never say Never. 

But, dollar for dollar, I prefer single family (or better yet, multifamily). 

You give up a LOT of control, and accept a lot of risk, with a condo. These problems simply aren't here with fee simple ownership.

@Will Payne You have an unfair competitive advantage with this deal which might work out in your favor.  I like SFRs purely because there is a larger buyer pool.  I can sell retail or to another investor.  You can do the same with a condo, but the pool of buyers is fewer.

@Will Payne

Also curious about the timeline between having a place rented and getting a refi through a conventional lender? Anyone know what the average would be? Is it as soon as you have a lease signed?

@Whitney Hutten thanks for the response! Yes I think I was in the right place at the right time for this one. My intention for my first rental was most definitely not a condo. I was hoping to find a deal on a multi family unit and house hack for a while (still the plan when the right opportunity arises). I am also very much interested in SFRs. This deal just happened to come up first! I have gotten myself stuck in the endless cycle of analysis paralysis a few times and I’m ready to pull the trigger!

Find a commercial lender or portfolio lender in your area - like a small local bank or credit union. Reach out to them on what they can do FIRST before you get into the deal. Always have multiple exit strategies planned. I would be very cautious with going with a residential lender for BRRRRing that follows traditional fanny/freddie financing because their seasoning period can be 6-12 months. While a commercial lender typically does not have a seasoning period if you purchase the house with cash or with hard money.