Long Distance BRRR Investors: How do you do the money part?

Question

My wife and I are buying our first long distance BRRR in Oberlin, Ohio. The house is 100k and we have 20k saved up. How do you do your loans? I am trying to figure out HOW I should go about this.

• - Get a Hard Money Loan in your state and then refinance with a bank from which your property is in?
• - Go through a bank in the state where the property is and then refinance with the same bank?
• - Go through rocket mortgage?! HELP! Haha

David M. · Answer

@Jake Vayda

Well, you could use a 203k reno loan so you can wrap the reno costs into the loan.  But, they can be a pain and you are forced to use a single GC.  So you can’t do the work yourself out hire the individual trades yourself.

How much are you figuring for the reno?  One aggressive tactic is to use 0% interest credit cards.. just pay them off before the offfer expires.

Out of curiosity... how close are you with your parents? In so much as lower the purchase price some more...  assuming they need the money, you send them the money afterwards..  the irs gift limit is $15k per person per year...  for that matter, use the $20k to fix it up first, then can your parents qualify for the cash out refi?  You’ll have plenty of cash (this is a brrr you said) for a down payment (from your parents technically) to purchase—assuming you want Title in your name. Your way was still two loans and will have to wait for the six month period.

Just some ideas with the limited info I have...

David M. · Answer

@Jake Vayda

It sounds like you are over thinking this...  The "state" where you get the loan is generally immaterial.  Many lenders are licensed to work in multiple states.  The lender I am partnered with can originate loans for properties in 49 states...  Its kinda of different topic, but go find your new favorite bank lender, mortgage lender, or a mortgage broker.

It will take more information and potentially your personally investing style to figure out whether you should use a hard money loan or a conventional loan.  For one, sounds like you don't have the funds for the reno.  Even for a hard money loan, your $20k shouldn't be enough.  By the way, many HML will also refi you into a convention loan so its "one stop shopping."

Sorry to be potentially negative, but how are you "buying our first long distance BRRR..." but you haven't figured out your financing?  So, maybe I'm not understanding what sort of assistance for which you are asking.

Good luck.

Jake Vayda · Answer

Yeah! I'll direct message you!

David M. · Answer

@Jake Vayda

Might be easier if you direct message me so we can setup to talk about this...

If you just quit claim the deed, that leaves the mortgage in your parents’ name.

Why are figuring 70% refi?  Why not 80% or better?  That will give you more cash for you to get your own loan and buy the house...

Jake Vayda · Answer

David M.

Thank you for still taking the time to help me as I ask questions. The good news is that my parents own the house outright (No debt). They want 100k cash (They are building another house).

Real Numbers: We put 20k in renovations.

Cash-Out Refi: House is now worth 160k, they get 112k (70%) as cash in the refi.

Sell of house: My parents give us 12k and keep 100k (We agreed on 100k for the house) as the price of the house

Maybe we could do a quit claim deed?

Am I on to something here? Any other thought?

David M. · Answer

@Jake Vayda

Well, the ARV by definition is an estimate of the market value 'after renovations.'  The market value is what a buyer would pay (in an arms length transaction).  So, I think your concept of equity isn't quite on target or I am not understanding your question.

I guess in your real number example, you seemed to have skipped over how you plan on buying the house.  Are you leaving the mortgage in their name?  After they refi, is it your idea to quit claim deed the property into your name?  That is a different problem.

I think my idea was for the renovation to occur while they held Title.  Now they refi and get a $112k loan.  What is their principal balance on their current loan?  If they own the house free and clear then they will $112k in cash in hand now.  Otherwise, they will have $112k less the current principal.  Assumedly, either way your parents will have some sort of pile of cash.  I'm assuming they are both alive so that they could gift you up to $30k legally.  Now you have $30k for a downpayment to purchase the property from them at, well, "whatever" price you'd want since it isn't an arms length transaction.  You just need to make sure you come to the table with enough to pay off the existing loan and not higher than it will appraise.

You'll need to play with the numbers a bit and see if they work.  Does that make more sense?  The equity doesn't "go anywhere" necessarily.  Sure, it goes "away" if the fair market value goes down, or it "increases" or appreciates if the fair market value goes up.

But, the real question is what do your parent's want?  They just need $100k to get out?

Jake Vayda · Answer

David M.

I've been toying with your idea for an hour now, thank you SO MUCH. Quick question...

If the house owners (My parents), renovate (With our money), and they do a cash out refinance, will the ARV stay the same when the buyer attains the house?

Real Numbers: We put 20k in renovations.

Cash-Out Refi: House is now worth 160k, they get 112k (70%) as cash in the refi.

Sell of house: They give us 12k and keep 100k as the price of the house.

What happens with the remaining equity once the Title is in my name? Which is the remaining 30% (160k-112k: 48k)

Emran Chowdhury · Answer

@Jake Vayda

It all depends on how much renovation is needed. If it is small and can be done by property management company in house - that is your best bet. Otherwise managing huge out of state renovation would be tough. There are multiple ways you can fund your deal i.e. hard-money, bank finance + out of pocket refinance & then conventional refinancing at the the end.

Thanks

Emran

Henry Lazerow · Answer

Trying to BRRR out of state is a high risk idea and trying to BRRR out of state with a hard money loan is a very high risk idea. Managing a rehab is tough from out of state and so is knowing what's a good enough deal to BRRR (often one block can be cheaper then another block, etc.).

I would recomend pick a market you like then find a good local realtor who does investments and find a deal you can buy with fixed 30 year conventional financing that needs cosmetic updates, later on in a few years you can BRRR it as it appreciates and benefits a bit from your cosmetic updates.

I have seen people get almost wiped out with hard money loans. It's only something you want to do if local and very experienced with an amazing deal.

Jake Vayda · Answer

David M. and Brian Hansen

I am actually buying the house from my parents. I’m just attempting to figure out a way where I can buy/renovate it with 20k. Any other ideas, do you think I should take out another loan? I do have 17k in retirement funds, would you recommend me using some of that?

Long Distance BRRR Investors: How do you do the money part?

Most Popular Reply