I've read so many BRRRR threads that I hope I have a handle on this and ready to do my first deal. Would love input.
- $46k cash on hand.
- 2/1 ( could be 3) SFH offering $30k in recovering, popular neighborhood.
- Rehab cost $20k
- ARV is $70k
- Use HML (12.75% 15yr, 20% down, 1% per $1k upfront fee, 1%/balance early payoff fee inside 1 year,) Initial purchase = "approx" -$24,000 (incl $6k down).
- My cash for the rehab. = -$20,000
- Appraisal = -$400
- total in- $44,000 ($26,000 mine)
- Rent ASAP $800/mo (approx $2400 net for 6 months)
- In 6 months, Refi 70% of ARV = $49k
- Am I crazy for taking the 12.75%? Is there a better way? My thought for keeping more cash on hand was a safety net because it being my first deal. In addition, the traditional bank I've used on to 2 other deals seemed a little timid of my strategy. So, I went to somebody who was willing to do it.
- doesn't this scenario put me back where I started with my cash in hand?
- Is it possible to do a home equity immediately after rehab to cash out early? What are the details of that route? (Cost, rules etc).
- Other thoughts? Things I'm missing?
*please excuse any errors in the math. It's late. ;)
Contract the deal and the rent could pay the mortgage. Work the numbers that way or lease w/ the option to buy after 3 years
Assuming everything goes by the books, you're essentially getting a cash-flow property without losing any real cash. Sounds good for your first deal.
Make sure that whatever bank you use will refinance against the ARV. Some will only refi against the purchase price until enough time passes.
A HELOC would work, but your rates won't be as good as they would be from a refi.
@Jerod Smith , were your "2 other deals" not a success? Are there lessons you have learned but the Bank needs more proof?
If you can't find better than 12.75% loan rate, my initial recommendation would be to put more of your own cash down, borrowing less. Think of it this way: for every extra dollar of your own that you are prepared to risk, you are effectively EARNING 12.75% interest!
Different banks will have their own rules for how long you have to wait, or what percentage of appraisal they will let you borrow against. All the best...
Other two deals were turn key Tennant occupied properties. They are successful. This is my first rehab though. My bank (from the other two deals) said they would make me hold it 12 months on a refi. This is considering I get my initial financing somewhere else because they don't like to refi a loan they just completed.
Seems like they really just want me to do the traditional, 20% down and hold but I really want to find a way to get that cash back out like I'm seeing others do on BR.
ps. Other two deals were traditional 20% down hold. I have equity in both however. Owned 1 since March and the other since August.
@Jerod Smith , how about you put the 20% down from your OWN cash so you can get conventional (low) interest rate on the balance of your purchase, then use as little hard money as you dare for the rehab (idea: pay back ASAP)?
If your HML is keen to keep lending to you, wouldn't you still have enough cash for another 20% deposit for ANOTHER similar investment, straight away?
Come on, hurry hurry hurry (said somewhat jokingly)...