In the off chance that my refinance doesn’t allow me to completely pay back the hard money lender, should I wait until I have some cash on hand to make absolutely sure I can pay them back? ￼
I don't have much experience but I have couple thoughts,
- 1. When you call each hard money lender, ask them what will they do if you have trouble pay back the money under extreme circumstances, e.g. lost your job. Are they willing to extend the payment period or work out another payment plan.
- 2. I don't think you should wait until you have some cash. Come up with plan B, e.g. family and friends, 401k loan.
- 3. Is this your first deal? Maybe be a little more conservative when you analyze your deal.
BRRRR may sounds like an attractive way to invest because you can get money back. But you need to have some cushion to begin with.
@James Moore usually we know how much cash out of pocket is needed on each deal because that's how we structure our offers. I would certainly recommend getting prequalified with a Hard Money Lender for the "BUY" step and a lender on your "REFINANCE" step. Generally speaking you will need several things to successfully complete a BRRRR here:
- ARV - being able to calculate this on your own (meaning, without the wholesaler telling you the value) is really important.
- Repairs - You will likely need to know how to budget the repairs as well. Getting a contractor can be extremely frustrating especially if you need to make an offer without even looking at the property. How do you calculate repairs without a contractor? You may need to lean on other local real estate investors in the beginning. Or maybe even just focus on properties with a very light rehab?
- Lenders - You will need a lender on your BUY step and on your REFINANCE step. And I would HIGHLY recommend to read this article I wrote for Bigger Pockets on how to find good lenders that you can find HERE. If they are good, they should be absolutely definitive on rate, terms, costs, etc. Trust me, many lenders will tell you they can do this...but it's very rare to find. When I first started BRRRR'ing my properties lenders would tell me "That's illegal"....it's not, then just didn't know anything about it.
Those 3 calculations will allow you to know how much money you need on a property and how much you will come out of pocket. However, that's not the hardest step though...
- Finding Properties - and this is the absolute hardest step of anything right now. So network like crazy and find some good resources. It's going to be hard...but if it were easy then anyone could do it.
Hope this helps!