Confused about BRRRR and leverage

[Jeremy Segermeister]

Hi All,

I've been reading a lot about the BRRRR strategy but am still confused about one thing. Assuming you are taking these loans out in your personal name, won't the banks stop lending to you after the first few properties? Or are they using the rent to keep the debt to income ratio down?

Also, I'm very conservative and hate to have these loans out in my name and put additional risk on my family and my personal household. I keep very high reserves but still would prefer to keep all liabilities in the LLC. I like to plan for worst case scenario. Any tips on getting these loans secured with the credit of the LLC? Do I just need to do a few deals with the same lender and they will eventually be able to lend to the LLC?

Thanks

[Greg Scott]

Jeremy:

Time to re-evaluate your thoughts on debt.   In this country good business debt often gets painted with the same brush as bad consumer debt.  I can assure you they are very different things.

Let's start with your first question.   Debt to Income only becomes a problem if you are buying several homes for you to live in.  If you buy a cash-flowing rent property, the rental income counts towards your income.  Usually the more rental property you buy the EASIER it gets to qualify for the next property.  (I will note that it is easier to qualify but with all the dumb government requirements, the paperwork is what gets cumbersome.)

The more cashflowing properties you have, the LESS risk you have.  How can that be true????  Well, if I have one rent property that cashflows at $500 per month and the tenant moves out, I immediately go to negative cash flow.   If I have 10 properties cashflowing at $500 per month and a tenant moves out, my cash flow goes down but remains strongly positive.

Regarding mortgages, you can get up to 10 conventional mortgages in your name. If you choose to, you could put those into a bank loan through an LLC, however, those loans have higher interest rates and usually a 5 or 10 year balloon. The higher rates hurt your cashflow and the balloon creates investment risk. (You may not be able to refi if your loan comes due during a recession, so you get foreclosed.)

Personally, I would stick with conventional mortgages (in my name) until you run out of loans!

Good luck