Hi everyone, I plan to start investing out of state at some point this year. I was thinking about using hard money to buy distressed properties that I could rehab and then refinance into a traditional loan to pay back the hard money lender. Does anyone have experience doing this? Is there anything I should keep in mind with this strategy?
@Jesse Maldonado You are talking about executing on the BRRRR strategy. I've worked with plenty of investors who have executed on BRRRR and you can find a ton of information throughout BP related to this strategy and the pros/cons and watch-outs, no need for me to rehash them here. However, one item out of your posting that caught my eye is the degree of difficulty associated with the rehab portion when you are an absentee owner. If doing this, it will be critical to have a GC you have vetted thoroughly and you can get extremely comfortable with. You'll be counting on this person to be your eyes, ears and mouth on the project and you basically putting all your funds and trust into the GC. You may want to consider finding a GC to also be a partner on this so that person has skin in the game on the rehab as a way to mitigate your risk.
So I'd suggest that not only do you take a look into all there is to know about BRRRR but really get a strong knowledge base as well about doing a rehab from a distance.
If you need to invest out of state, the less riskier approach is to find ready for rent (or already rented) properties so you don't have to worry about managing a project from a distance and can jump right into earning residual income.
Thanks George, partnering with a general contractor is definitely something I will consider.
@Jesse Maldonado , this is a pretty typical plan of attack. As long as you are correct on your scope of work, timelines, rehab budget, ARV and account for your holding costs, you will be fine.
Rehabs can be risky. If the timeline gets out of control, your carrying costs are very high with HML and therefore can take a decent deal to a bad deal.
On the ARV, remember that since you are refi'ing the appraisal will likely come back lower than you would expect. Also, make sure you have a lender lined up that does NOT require a full 12 month seasoning. There are some that will accept 6 month seasoning, but they are fewer and further between than 12 month lenders.
I was concerned most with potential refinancing setbacks, so this advice helps a lot. I’ll definitely keep it in mind. Thanks Evan