Buying first duplex
I am using a conventional loan to buy my first duplex. I would like to eventually BRRRR this property and use a DSCR loan so that it's not on my credit report. Should I have used a hard money lender first?
One unit is vacant and the other tenant is moving in October. The property could needs around $6k in repairs. I want to update the kitchens & baths. I have a $43k estimate. Buying for $255k and it appraised at $265k.
Most Popular Reply
Heath, great question - and honestly, you're asking the RIGHT question at the wrong time (but we can fix this).
The short answer: YES, you should have used private money first. Here's why:
Your Current Situation (Conventional Loan):
- Purchase: $255K
- Repairs: $6K + Renovations: $43K = $49K total rehab
- All-in: ~$304K (plus closing costs)
- Current appraisal: $265K
The BRRRR Problem You're About to Hit:
Most conventional lenders require 6-12 month seasoning before you can refinance. That means:
- Your money is STUCK for a year minimum
- You're paying 6-8% on money you can't recycle
- You can't do your next deal during that time
- The property sits on your DTI, limiting future purchases
What You SHOULD Have Done (Private/Hard Money Route):
Phase 1 - Acquisition & Rehab (Months 1-4):
- Hard money loan: 100% purchase + 100% rehab
- Interest-only payments: ~$2,500/month
- NO seasoning requirements
- Doesn't hit your DTI immediately
Phase 2 - Stabilization (Months 5-6):
- Both units renovated and rented
- New appraised value: $350K-$380K (based on your $43K upgrades)
- Strong rental income established
Phase 3 - Refinance (Month 6-7):
- DSCR loan at 75% LTV
- Pull out $262K-$285K
- Pay off hard money loan
- REPEAT with your capital back
Your Actual Numbers with Private Money:
Purchase: $255K (100% financed) Rehab: $49K (100% financed) Total loan: $304K After Rehab ARV: $360K (conservative) DSCR Refi at 75% LTV: $270K Your capital recovered: ALL OF IT Left in deal: $0-$10K Monthly cash flow: $800-$1,200VS. Your Current Conventional Route:
Down payment: ~$51K (20%) Rehab: $49K (out of pocket) Total capital tied up: $100K Stuck for: 12 months minimum Can't do next deal: TRUEBut Here's the Good News:
You're only in contract (or just closed). Depending on your situation, you might be able to:
- Bring a private money partner NOW to fund the rehab (we do this)
- Do the renovations quickly (complete by October when tenant leaves)
- Refinance in 6 months into DSCR loan
- Use the pulled equity for your NEXT deal - the RIGHT way
Critical Question for You:
After you put $49K into this property, what's your realistic ARV?
If it's $350K+, you have $46K-$96K in equity you could pull out in a DSCR refi. That's your next down payment.