Working on the B in BRRRR

[Selena Walsh]

I currently have two properties - 1 SFH w/ conventional loan and 1 duplex w/ FHA loan. Both were originally acquired as personal/owner occupant properties but are now being used as short-term rentals. Original goal for the STR was primarily cash flow.

Now, I'm just starting to get more serious about BRRRR and want to buy a third property soon. Being a relative newbie, I'm still trying to figure out the best option for financing. I have good credit and income and along with my partner we will have a 20% downpayment. Do I apply for a regular conventional mortgage? Is it based on my personal credit and debt to income? If I keep buying properties won't this eventually get "tapped out"? Are there other options we should be pursuing? Hopefully these questions aren't too basic... I guess I'm looking for advice for how to approach financing my first real BRRRR. Thanks!!

[John Leavelle]

Howdy @Selena Walsh

Congratulations on the first two. BRRRR is all I do right now. I will tell you how I approach the process and you can go from there.

First I get pre-approved for the Refinance loan using a local bank or credit union.  The ones I use can do both conventional and portfolio loans. You will eventually need to start using Portfolio loans.

It is best to use short term financing for the acquisition and Rehab of the property.  Use a Hard Money/Private Money Lender for this.

The BRRRR strategy is kind of like a long Flip. What I mean is I try to buy distressed properties at a discount that need Rehabbing to force appreciation. Once Rehabbed and rented I want to get my cash back through the Refinancing (as opposed to selling like Flipping) as soon as possible. Additionally I try to keep my All-in costs (Purchase price, Rehab costs, Closing and Holding costs) to 70% of my estimated ARV. The average Refinance loan is a 75% LTV based on a current appraisal. This gives me a little buffer encase my ARV and the appraisal are not the same or my Rehab estimate is off.

You may find it difficult to get conventional financing for the acquisition of a distressed property.  That is why short term financing is the preferred method.