Coming up with money for rehabbing in a BRRR?

Question

If you buy an investment property and plan on using BRRR, and come up with the 20% downpayment on a 100k property, how would you come up with the additional 20-30k for rehab? Out of pocket? I used to think a 203k loan would work but realized that only work on FHA loan backed properties, so if this is a second property that you're not living in, that wouldn't work. Is a partnership absolutely needed here? Or could you get hard money for the rehab, any ideas??

Thanks so much for the responses,

Vince

Thanks so much for the responses,

Vince

James Barnes · Answer

I'd hate to revamp an old topic but question @Ben Leybovich. I was just searching the BRRR strategy and this post showed up. I live in southern MD and around here, the apartments in need of rehab are not in the best of neighborhoods to say the least. What if we don't have an apartments locally? Would SFH then be okay in your mind to invest in? I also was under the impression that its better to learn to walk before you run.

In other words, wouldn't you want to start of with a small duplex-4plex or a SFH to get a taste of the landlording business? If he's asking how he could finance a SFH then what makes it easier to finance an apartment complex? Wouldn't you need the funds to do so upfront or then would you need to get "creative"?

Thanks

James

Ben Leybovich · Answer

Go straight to apartments. The value ad and doing what you are wanting to do is easier because of method of valuation the banks will use :)

Trust me - been there, done that, Vince...

Vincent Crane · Answer

@Ben Leybovich

Thanks for the reply Ben. I could and may do this with a multi instead of a SFR. I just wanted to see what the options are for coming up with the cash. Once you've done a couple and have 40-50k in equity you can just do the cash out refi (hopefully) and keep on going and buying more with that same equity over and over. But I was wondering, for that initial 50-60k needed for the down payment and rehab, that's quite a chunk of change to come up with. I plan on transitioning to apartments eventually, but need to start off with multi's to get there haha.

Ben Leybovich · Answer

Haha - the oldest trick in the book. Now that you tell me, I remember my dear friend @Brandon Turner telling me that he hopes to be remembered by this term. I must have blocked it out, as I do so many things he says...lol (still love me, Brandon?)

The naswer depends on how good the LTV is. Yes - it can be hard, or it just can be private money. Or, it can be a LOC plus other. Point being, when you are done, be sure that you are no more than 70% LTV based on ARV - at which point you should be finance yourself out. To be honest, I haven't used a conforming 30-year note in so long, I don't know that deal any more. A relationship with a portfolio lender will help if you are building a business model out of this...

But why bother with SFR. I do this with apartments, and it works as well or better :)

BRRR - sounds cold, to say the least...lol

Lois Stern · Answer

Great question @Vincent Crane

- thanks for asking it [I wait patiently to see what answers are given]

@Ben Leybovich Buy Rehab Refinance Rent Repeat

Ben Leybovich · Answer

What's BRRR?