How to manage BRRRR financing the right way

Question

Hey BP!

So let me get this straight. The HMLs I've been talking to on the phone offer me loans for a 12 month period. I plan to do a lot of the rehab on my BRRRR, so let's say it takes me 6 months to get it rehabbed and rented and 6 months of seasoning period with the tenant living there. I wouldn't be able to take 6 months on the rehab right? If I took 4 or 5 that seems a little sketchy still. How would you guys recommend I manage the financing? Go for an 18 month term with the HML? Find a way to get it refinanced faster? Any advice would be great. Thanks!

Ashley Cross · Answer

Speak to the lender that will be completing the refinance. The 6 months starts the day you acquire the property not after the rehab is done. Also, keeping the hard money loan that long will be very expensive and it will certainly eat away your profits. When I do my Brrrs I always target 6 months. I guess it depends on how extensive your renovation is but if its mostly cosmetic for 1-4 units it should be done in 3 months.

Robert Tinker · Answer

@Noah McPherson I was able to refinance right after rehab was done, with no seasoning period. Check with multiple lenders.

Noah McPherson · Answer

@Joe Splitrock Thanks for the advice. I'll definitely reach out to hard money lenders to see what their options are for both longer periods and extension payments. Also it's relieving to know I should only need 6 months on title.

Noah McPherson · Answer

@Jason Shackleton Noted! I just did the math. HML costs are much higher than I had thought. I'll narrow that down as much as possible.

Jason Shackleton · Answer

Hey @Noah McPherson It sounds like your renovation time estimate is pretty wide. I would try and narrow that down. If you use the same lender for HM and for the refinance you may be able to get away with no seasoning period. 18 months is a real long time to be paying the high fees of HM. In my opinion complete quality renovation work but try to get it done asap. Good Luck!

Noah McPherson · Answer

@Matthew Irish-Jones *BRRRR

And I agree it is risky. People afraid of risks should stay out of real estate, but I also think it's important for everyone out there to realize the amount of reserves they need and the importance of well defined exit strategies. With those, they'll be safe.

Matthew Irish-Jones · Answer

@Noah McPherson it’s only 6 months for Residential loans.

Matthew Irish-Jones · Answer

@Noah McPherson you manage BRRR financing the right way by paying cash for the asset, doing the rehab in cash and taking out a loan after.

Far to many things can go wrong on a BRRR for a high interest rate HML.

If you don’t have the cash to BRRR, buy a low risk double… wait 7-10 years, refinance, take a HELOC and BRRR with your own money.

Tried and true formula to safe wealth building.  The idea that you are going to pull off a BRRR without owning a construction company or being a GC while using barley any of your own funds is more dangerous than lucrative.

Zachary Beach · Answer

@Noah McPherson it’s 6 months form the purchase not from getting tenants. Also you can do rate and term at any time but 6 months for cash out is what I have found.

Joe Splitrock · Answer

Hope for the best, plan for he worst. That is how you mitigate risk in this business. Great question thanks for starting the thread.

How to manage BRRRR financing the right way

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