Brrr closing costs?

2 Replies

We are first time investors. We are trying to do everything without using personal capital. I’m trying to get recommendations on how you guys handle closing costs and other up front costs.

We have our first deal set up. 60 pp 30 rehab. 135 arv. We have a HML set up for 12% and 4 points but covering 100% pp/rehab at 70% arv. They also have refi availability at 75% arv. Our only catch is we will have to pay the 4 points and closing costs which I'm told will come to around 6k.

Can we get a separate loan for the 6k? Don't know how we build that into the BRRR strategy. Prob going to try to ask for seller to cover closing, but that still leaves us with closing at refi and point to pay out of pocket.

I'm not sure how you could get into it with financing closing cost (maybe a HELOC or a LOC for that 6k), but I would recommend looking into a construction loan from a local credit union. This is what I'm doing now. I chose this over hard money because the fees are like a normal conventional loan (1% of loan amount and few smaller fees for appraisals etc). I'll pay interest only for 6 months. Nothing like I would have had to pay for hard money (I explored that option as well). The credit union I'm using will automatically roll the loan into a 15 year note if I want, but I'll cash out refi later on to a 30 yr.

Don't forget you've got holding cost with that hard money, and at 12% it won't be cheap. Have plenty in reserves for holding costs. The more reserves you have will also be helpful come refinance time.

@Jeffery Rayome , as Clint mentions, it is very hard to do this without any personal capital at work.  Have you looked at the terms of this loan?  There is some grey area in what you are seeking to do.

Could you ask the seller to pay the closing costs, yes. I don't know the property, but you are paying 60k, and asking them to contribute $6k, which means they are now really netting $54k (or 10% less), so it might be a deal killer off the top. A HML, likely, will not allow you take out a second mortgage to cover this either.

Secondly, while you have a loan, you will have cash in this deal.  HMLs often have liquidity covenants that you need often times 10% of a the loan balance sitting in cash at all times.  Secondly, you will likely be covering cash flow items out of pocket.  Taxes, insurance, interest, contractor payments often need to be PAID before the lender reimburses you with a draw, which costs money as well.  So while the lender will cover a lot of the items, there will be periods that you are paying bills out of pocket first, then getting reimbursed.

You may have considered all of this, and have cash to use.I often see posts here of people wanting to get into real estate with $0 in the bank and no investors, which I have yet to see work.