Right house picked but have no money!

[Josh Brosius]

Hi, I'm a 22 year old who has been looking on Zillow for the last two years for multifamily duplexes in my area. I have finally found one that is worth investing in. The asking price is 80,000 but it is worth 150,000 minimum after rehab. The thing is I'd have to FHA and don't have money for the rehab. I don't think I'd qualify for any high loan. What is the best or safest way for me to find/get the money for the rehab. The BRRRR strategy is what guidelines I'm trying to follow. After I rehab I'll refinance to get money back but I don't know how I'd get the money to rehab. New roof, furnace, siding, etc. I'm itching to get this property because it's the only one I've seen that I know is worth it.

[John Leavelle]

Howdy @Josh Brosius

I hope you understand that if you go the FHA route you will be required to live in one side of the Duplex for at least one year (House Hack strategy). That will reduce your rental income by 50% for that period. Which means you may have negative Cash Flow each month that year. Any negative Cash Flow would be part of your Holding costs within the BRRRR strategy. If you still want to do it you need to look into a FHA 203K loan. It covers both purchase and Rehab of the property. This strategy and the BRRRR strategy do not work together to well. It is hard to have enough equity in the property to complete a Cash-out Refinance.

Let's look at your numbers.

$80,000 purchase price and a projected $150,000 ARV. That gives you a $112,500 (75% LTV) max Cash-out Refinance loan based on ARV. That leaves you with $32,500 for your Rehab, Closing, and Holding costs. Any costs more than that and you will not be able to pull that amount out. There will be $37,500 (25%) Equity remaining in property after the Refinance. If you can stay within those numbers using the FHA loan then it might work. The exception might be the negative Cash Flow.

Make sure you do a Cash Flow analysis based on future Refinance mortgage payments. You want it to be a good Cash Flow property. Then re-analyze it using your House Hack (FHA loan) numbers.