Can I do a partial BRRRR on a primary residence?

Question

Is it possible to do a partial BRRRR on a primary residence and essentially just get my down payment for free?

Meaning, I buy a distressed property, fix it up to ARV, then cash out refi to pay off my hard money loan, but instead of renting it out, I just take over the mortgage myself and live there?

Hunter Vigneault · Answer

@Steven Barr They are not necessarily the same, so a private money lender could be a good way to go as well, though it's harder to find a good one particularly if you are just getting started and don't yet have a track record (I don't know if that's accurate). If you are just trying to get around fronting any down payment, there are sometimes hyper local focused banks that are willing to lend on ARV. If your appraisal comes in with a value that shows 20%+ equity they may be willing to forego a down payment. I have seen it personally, but it will take a lot of calling around to see if they'll do it.

Hunter Vigneault · Answer

@Steven Barr Generally speaking, yes - though a hard money lender would probably not be the right way to go, as they usually will not lend on owner occupied properties.

Speak with your local banks and see which one has a construction to permanent loan that you will qualify for - that's likely to be your best option.

Jake Wiley · Answer

I would say there are two transactions here really.

1)  Is buying the distressed property and doing the rehab and fix up.

2)  Refinancing the property for cash out.

You can probably do the first transaction with whomever it makes sense to get the deal done, you really never know where you'll be once it's completed, maybe it does become a rental after all.   So if you find a lender that will get this done for you and the numbers make sense and there is no or a reasonable pre-payment penalty, go for it.

The second one is where it might get a little tricky.   Assuming you want to live in it yourself, you may be looking for a conventional loan.

Here's a link to Fannie Mae's cash-out requirements.    Probably most important is the 6-month seasoning requirement for the loan, and what you are thinking/looking for in terms of cash out.     It's not super easy to get big cash-out loans conventionally, there are DTI requirements etc that you'll have to jump through because the property is not generating its own income if you live there.    However, it might be a slamming deal if you can essentially refi out of the first loan and move into the property without having to come up with any cash vs. also having cash coming back to you.

I'd go talk to some community banks and lenders in the area to see if maybe there's an option for you to do what you are looking for more conventionally, but also step two above.   I'd go into the deal wide open knowing what you would be able to get out of the property with the refinance based on your personal situation.

Good luck!

Michael Blum · Answer

@Steven Barr

My first investment property was similar to this except I did a conventional loan and then refinanced out and did a complete BRRRR. Depending on the condition and amount of rehab required to get you to the new ARV I think this is possible. We are actually doing something similar with our current residence. Now I recognize financially getting a conventional loan may not be the “best use of money” but it’s what we could do at the time. Happy to discuss more if I can help

Samuel Albert · Answer

@Steven Barr I can't remember the actual name of the loan, but I think it's an fha with a 203-k. It's an fha loan that allows you to also finance the rehab. That being said, I guess you wouldn't be able to make a profit off of the refi. If that was your original intent.

Good luck!

Steven Barr · Answer

@Hunter Vigneault that’s good to know! Thanks for the insight

Steven Barr · Answer

@Hunter Vigneault What about a private money lender instead of hard money? Or are those the same thing?

Can I do a partial BRRRR on a primary residence?

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