I have a couple of questions about the BRRRR strategy.
First, if I'm doing my first BRRRR and don't have reserves or capital (assuming the hard money lender covers 100% of the purchase price and rehab costs), is there a way to roll the monthly HML payments into the loan, or would I need to bring in a partner with reserves to cover those payments until I reach the rent/refinance stage?
Second, what are the key numbers and metrics I should focus on when doing a BRRRR? I know building equity is crucial for using as a down payment on the next deal, but how should I factor in cash flow? What calculations help confirm it's a solid BRRRR deal? Would this be projected rents, cash flow, and/or equity? And what about using a DSCR loan for the refinance? Any tips there? I'm assuming the goal is to secure the best possible interest rate.
I’ve been learning a lot lately and feel like I’m at the point where I want to take action, even though I’m nervous. I’m pretty introverted and usually keep to myself, but I believe I have a rough outline of the steps:
1. Talk with HML, shop for one that makes sense.
2. Find a distressed property that makes sense (through a realtor or other means).
3. Work with contractors for the rehab.
4. Rent the property out (1% rule, or compare nearby rents with the same kind of property), with a property manager in place 8-10% of the total monthly cash flow.
5. Refinance with a bank (DSCR or other favorable mortgage).
6. Pay off the mortgage throughout the amortization and use equity for the next deal.
Any insights, advice, or things you’d point out would be greatly appreciated!
100% financing is a pipedream, especially as a first time investor. Expect to bring at least 10% down to the transaction, with 15%-20% being more realistic. Some lenders will allow the monthly interest to accrue, but most will expect the interest to be paid monthly.
Once the rehab is completed, you can use a DSCR loan or similar loan to payoff the hard money. Most refinances are going to be limited to 80% or less of the new value, so if you owe more than this when the rehab is complete, you will need to bring cash to close. The majority of lenders will also want to see reserves on these loans, which is a multiple of the monthly payment. So, if the new monthly payment will be $2k, expect to need to be able to show $6k+ in liquid assets leftover after closing.
It seems like you have 0 cash right now. This is not a no-money game; you will need capital. You're best bet might be to find a partner who can bring the capital in exchange for you doing the work.
100% financing is a pipedream, especially as a first time investor. Expect to bring at least 10% down to the transaction, with 15%-20% being more realistic. Some lenders will allow the monthly interest to accrue, but most will expect the interest to be paid monthly.
Once the rehab is completed, you can use a DSCR loan or similar loan to payoff the hard money. Most refinances are going to be limited to 80% or less of the new value, so if you owe more than this when the rehab is complete, you will need to bring cash to close. The majority of lenders will also want to see reserves on these loans, which is a multiple of the monthly payment. So, if the new monthly payment will be $2k, expect to need to be able to show $6k+ in liquid assets leftover after closing.
It seems like you have 0 cash right now. This is not a no-money game; you will need capital. You're best bet might be to find a partner who can bring the capital in exchange for you doing the work.
hello. if you don't have reserves or capital, you're not ready - save up more. it's actually really easy to do a BRRRR. buy any property, fix it up, and refinance. congratulations, you did a BRRRR. what's difficult is doing a BRRRR where you get your capital back. and it sounds like that's what you're trying to do.
you could also consider a live-in BRRRR. slightly less risk, but still requires capital. here are some specific responses to your list
2. Find a distressed property that makes sense (through a realtor or other means).
-correct. unlikely to be through a realtor. most distressed properties are off market.
4. Rent the property out (1% rule, or compare nearby rents with the same kind of property), with a property manager in place 8-10% of the total monthly cash flow.
-the 1% rule is irrelevant. your best hope with interest rates where they are is to break even. and this will be dependent on the specific expenses for that property. actual everything - actual mortgage, taxes, insurance, repairs, capex, vacancy. do not use estimates, do not use rules, do not use percentages, do not use guesses.
-6. Pay off the mortgage throughout the amortization and use equity for the next deal.
sort of - you pay off the mortgage over the life of the mortgage with the rent. if by "use the equity for the next deal" you mean use the proceeds from the refinance to get your own capital back, then yes, that's the goal. but it's spectacularly difficult to get 100% back. real estate transactions are full of costs. closing costs to buy, holding costs to hold, refinance costs to refinance, rent-out costs to refinance. costs, costs, costs. doing a transaction where it's such a home run that you recoup purchase + rehab + everything else is nearly impossible.
if you want a deep dive into a BRRRR that looks at ALL costs without sugarcoating anything check out Tarl Yarber's videos on youtube.
hello. if you don't have reserves or capital, you're not ready - save up more. it's actually really easy to do a BRRRR. buy any property, fix it up, and refinance. congratulations, you did a BRRRR. what's difficult is doing a BRRRR where you get your capital back. and it sounds like that's what you're trying to do.
you could also consider a live-in BRRRR. slightly less risk, but still requires capital. here are some specific responses to your list
2. Find a distressed property that makes sense (through a realtor or other means).
-correct. unlikely to be through a realtor. most distressed properties are off market.
4. Rent the property out (1% rule, or compare nearby rents with the same kind of property), with a property manager in place 8-10% of the total monthly cash flow.
-the 1% rule is irrelevant. your best hope with interest rates where they are is to break even. and this will be dependent on the specific expenses for that property. actual everything - actual mortgage, taxes, insurance, repairs, capex, vacancy. do not use estimates, do not use rules, do not use percentages, do not use guesses.
-6. Pay off the mortgage throughout the amortization and use equity for the next deal.
sort of - you pay off the mortgage over the life of the mortgage with the rent. if by "use the equity for the next deal" you mean use the proceeds from the refinance to get your own capital back, then yes, that's the goal. but it's spectacularly difficult to get 100% back. real estate transactions are full of costs. closing costs to buy, holding costs to hold, refinance costs to refinance, rent-out costs to refinance. costs, costs, costs. doing a transaction where it's such a home run that you recoup purchase + rehab + everything else is nearly impossible.
if you want a deep dive into a BRRRR that looks at ALL costs without sugarcoating anything check out Tarl Yarber's videos on youtube.
hope this helps
what you describe only happens for VERY experienced repeat borrowers. And very few companies do them.. I do them exactly like that but NEVER for someone starting out.. Only those that do at least 6 plus flips a year and ONLY at price points I am comfortable with IE no luxury .. has to be middle america bread and butter stuff.
I have a couple of questions about the BRRRR strategy.
First, if I'm doing my first BRRRR and don't have reserves or capital (assuming the hard money lender covers 100% of the purchase price and rehab costs), is there a way to roll the monthly HML payments into the loan, or would I need to bring in a partner with reserves to cover those payments until I reach the rent/refinance stage?
Second, what are the key numbers and metrics I should focus on when doing a BRRRR? I know building equity is crucial for using as a down payment on the next deal, but how should I factor in cash flow? What calculations help confirm it's a solid BRRRR deal? Would this be projected rents, cash flow, and/or equity? And what about using a DSCR loan for the refinance? Any tips there? I'm assuming the goal is to secure the best possible interest rate.
I’ve been learning a lot lately and feel like I’m at the point where I want to take action, even though I’m nervous. I’m pretty introverted and usually keep to myself, but I believe I have a rough outline of the steps:
1. Talk with HML, shop for one that makes sense.
2. Find a distressed property that makes sense (through a realtor or other means).
3. Work with contractors for the rehab.
4. Rent the property out (1% rule, or compare nearby rents with the same kind of property), with a property manager in place 8-10% of the total monthly cash flow.
5. Refinance with a bank (DSCR or other favorable mortgage).
6. Pay off the mortgage throughout the amortization and use equity for the next deal.
Any insights, advice, or things you’d point out would be greatly appreciated!
As others stated, you will want to consider getting funds for your business first. Even with high leverage, you will need money for costs and reserves to keep your projects alive. Starting a project over leveraged with no funds behind you is a dangerous way to put yourself at risk before the journey begins.
Starting this venture with money is risky enough. Starting it broke is destined to blow up.
Most people put the cart before the horse. I can't tell you how many people contact me for a refi and the work in the house isn't done, or they want to close a bridge loan but they don't have a SOW yet.
I know books and podcasts suggest you can do it without any money and YOU CAN but not you per se. YOU if YOU is a seasoned investor who has been in and out of deals, knows a market and the RE like the back of his hand and through years and years and years of networking found a Private Money source that believes in their knowledge and experience enough to back their purchases and rehabs at 100%.
It's like saying you wanna play in the NBA and then ask how do you start as the shooting guard for OKC, well the guy who is in that position has been playing basketball since he can walk, put in all the work, went to Div 1 school, got drafted, put his time in in practice, worked his way up the depth chart, worked on his game every off season and now he's the best in the league.
The only way to get in RE with no money is to have a wealthy family member to back you or friend. I really do not think a relationship with a private lender would be possible. If you had one million in the bank, would you lend 300k to some new investor who is way ahead of himself and a little ignorant as to the process?
Your enthusiasm is great. And you need to put the money issue on the back burner and stop thinking getting in a deal is your goal. That's not the goal at the moment. You need to become as versed in the process as you can. Sourcing. Contracting. Financing. Exiting. Market choice. You need to be the guy who can find winners and has all the right framework in place. Then the money finds you. The market is full of investors with little knowledge, experience, and capital who are just flooding loan requests from lenders on bad deals that don't even make sense for them or the lender.
I've been close up on 40+ bridge projects . They all penciled out well and under that 75% threshold. Lots of them lost and the ones that won, won small. It made me totally refine what I label a good deal and totally reengineer the way I source properties.
I'll lay this warning like an Aesop fable: If you are searching out of state markets on MLS for properties and then also trying to connect to some 3rd party GC in that state and then deal with some 3rd party agent who will advise you on value, sales time, etc. STOP WHAT YOU ARE DOING. You are going about it the same way that caused others to lose lots of money. Often their last dollars.
This can not be done with casual relationships. A phone call or two and everything is in place. No. You're gonna be in way over your head and lose that 30k, 40k, 50k whatever you had coming in.
To do this right, profitable, successfully, and to scale, IMO, you need to be sourcing for cash in the secondary markets. Then when you have the deed, you go to the lender and apply for a bridge loan. You run the rehab which means a list of subs in he market for all trades/Facets: Demo, Mechanicals, Roof, exterior, floors, interior finish, kitchens/baths. You're running the subs and holding the cash and negotiating prices. You. Not some GC.
You're sourcing 20% or more off market value, you run efficient, cheaper rehabs that you manage. And now what you have is that instead of a 75% project cost to ARV, you have like a 60% project cost to ARV and that means you can sell 10% below the ARV and still make more than the investor that bought on market and used a GC and happened to sell at top price.
People fail cause they use the MLS, unreliable vendors, and in their numbers they use top end comp numbers. So if your numbers are based off of top end comps, then you need to get top end sales price. That rarely happens. You need to put yourself in the spot where you finish it with top end quality, but you list with the mid range comps. Now you are the steal of the neighborhood and your profit is still way better than average.
I've seen failure and I have seen success. I know what each look and feel like. I know what the process to each looks like. When you see it, you can't believe you hadn't seen it prior.
@Michael Ochoa you'd be better off partnering with someone who has funds and more knowledge than you.
OR
You could try finding ACTUAL under-market deals and wholesaling them to other investors for a fee. - This will raise funds for you - It will also FORCE you to network with other investors - who you can also learn from!
100% Financing does exist but you must show that you have previously exited 5 flips or refinances. You can also finance the payments, however again you must have experience.
I would recommend partnering up with someone that is experienced to get the best terms possible. If you try going solo, you might reasonably expect a minimum of 20-25% down + closing costs and usually 3-6 months of reserves
This is a good set of questions @Michael Ochoa because you're thinking beyond just buying the property and asking whether the full BRRRR cycle can actually work.
@Patrick Roberts made a very important point that I would not gloss over: this is usually not a no-money-down strategy, especially for a first BRRRR. Even if a hard money lender funds a high percentage of purchase and rehab, you still need to plan for reserves, interest payments, utilities, insurance, taxes, delays, and draw timing.
One thing I would separate clearly is “can I close?” from “can I survive the project and refinance cleanly?”
For the acquisition/rehab phase, I would ask the HML:
Are interest payments due monthly, or can interest accrue?
Are rehab funds advanced or reimbursed after completed work?
What inspections are required before draws are released?
Is there a minimum draw amount?
What liquidity/reserves do they require after closing?
For the refinance phase, DSCR can be a strong exit tool, but it is not automatic. The lender will still care about the rent, appraised value, credit profile, reserves, property condition, and whether the loan amount fits within their LTV limits. As Patrick noted, if your payoff balance is higher than the refinance proceeds, you may need to bring cash to close.
The metrics I would stress-test before buying are:
Purchase price
Rehab budget plus contingency
Total loan payoff after rehab
Conservative ARV
Expected refinance LTV
Market rent after repairs
Taxes, insurance, HOA, and property management
DSCR at today's rates
Cash left in the deal after refinance
Backup plan if appraisal or rent comes in lower than expected
For a first BRRRR, I'd rather see you partner with capital or start with a deal that leaves room for mistakes than force a thin deal with no reserves. The BRRRR strategy works best when the deal is strong enough to survive imperfect conditions.
Michael, the version of BRRRR I'd point you to is what we call the Super BRRRR. The difference is bought equity.
Classic BRRRR tries to get your original cash back. Super BRRRR is built to get your cash back plus a check, because the equity is created on day one when you buy below market, then forced with the rehab. Every dollar under market is equity you own the day you close.
How it works:
Buy below market with hard money, about 10% down, with the rehab financed through draws.
Rehab, and document every improvement for the appraiser.
3. Rent it (long, mid or short-term).
Refi into a no-seasoning DSCR loan at up to 80% of ARV as soon as it's done and rented.
Real example: bought at $180K with $18K down, $35K rehab, appraised at $339K. 80% cash-out = $271K. After paying off the hard money, about $58K came back. That's the $18K down plus roughly $40K extra to fund the next deal.
To your specific questions:
No reserves. Some hard money lenders will build an interest reserve into the loan, so the payments come out of the loan during the rehab. Most still want a few months of payments in liquidity, so a cash partner on the first deal is very normal.
- Reserves at the refi. Our DSCR loans allow the cash-out itself to count as your reserves, so you don't need a separate pile of cash sitting in the bank to qualify for the refinance.
- The numbers. The one that matters most is purchase price vs ARV. Your all-in (purchase + rehab + holding + closing) needs to land at or under 75-80% of ARV, and the rent has to cover the new payment (DSCR 1.0+) at today's rates.
- The DSCR refi. Line up the lender before you buy and confirm two things: they'll lend on the new appraised value with no seasoning, and which rent they'll use.
Disclosure: I'm a DSCR/hard money broker with DSCR Kings.
