Newbie Question on BRRRR

[Trevor J Dammon]

Hi All,

Newbie here. I've been creating some spreadsheet, analyzing deals, and researching properties as much as I can. I'm now starting to look into the BRRRR method and have a couple questions.

First Question: Why do I need to purchase the property with cash or hard money. A lot of sources claim that I need to buy the property either with cash, a HELOC, or with hard money so that I can refinance after the rehab. Why can't I get a standard loan to buy the property and then refinance after the rehab?

Second Question: How are you finding distressed properties? Currently I use the MLS, which I know isn't the best way to find home runs. It seems like most properties there are already in pretty good shape. I could contact realtors but realistically I am not looking to buy for another year at least. I've heard of driving for dollars or investors mailing out letters but again I think I am a little new to the game to do that. I'm not sure I could have a fully competent conversation if I did get a response from a letter.

[Ryan Lockstein]

There are 2 big reason people typically use hard/private money or cash for the initial purchase of a house they plan to refi and pull all or most of their money out of.  

1.) A lot of properties (not all but most) you buy at a steep enough discount to be able to make the numbers work to pull out all of your cash on the refi require a lot of rehab. Conventional / FHA loans have a minimum standard for the condition of the property they will lend on (ie must be livable, have working stove and heat). So in a lot of instances the good deals won't qualify.

2.) You will most likely need money to finance your construction/rehab. Conventional/ FHA loans (not accounting for FHA 203k) do not lend you money for construction. So in addition to using one of these types of loans, you will then need to go find money for the repairs. On the other hand, hard money lenders will include your construction money in their loan, typically in draws.

In my experience finding off market discounted properties (I have done hundreds of deals) direct mail has been my best marketing strategy.  Like you said though, it takes some time and a lot of setting up of systems to make that strategy work efficiently though.  My other biggest off market deal finding strategy has just been buying from wholesalers.  Get on their email lists and check them religiously.  You will find 50 ****** deals for every 1 good one from a wholesaler list but if you are consistent with analyzing them as they come in, you will consistently find deals (for free!).  

I hope that helps.