BRRRR Success Stories with HML?

Question

So - I'm still looking to do my first deal and wondering if any of you successful investors would care to share the numbers on a BRRRR deal that you used hard money lenders to purchase the property and maybe even cover the rehab costs. I'm curious to hear if it's possible or if the HML's are too risky for these type of deals since you want as much equity as possible when you refinance. On top of it, has anyone done this with an out of state property? I'm located in Connecticut where taxes are brutal so I'm intrigued to find something where the taxes won't eat away at the cash flow. I'm seeing PA has some decent areas to start. Or since I haven't even done a deal yet, is it a waste of time looking out of state? Appreciate any feedback or insight.

Thanks!

Carlos Velasquez · Answer

@Pat McCandless, I am from Suffield CT and I can tell you that are many good deals, but what most people lack the cash to make the purchases. I started simple and recommend do the same. Buy a single family that is a HUD or REO property. Unless you are a first time home buyer, you can get great deals from these type of properties. I prefer HUD owned houses because they lack the motivation of pursuing profit and tend to accept lower offers. I purchsed my first SF for only 63k in Windsor Locks and the bid started over 10k of what I offered. I just saw that it was sitting there, and applied what I had read in a book (free actually) and offered lower. I got it and used les than 10k for the purchase and for the renovation I used my Home Depot and other credit cards. We leave in Connecticut and the rents here are high for SFM's so I was able to rent it for $1,500 and it was fairly easy. About 10 months later I did a HELOC and purchase another property. Doing this a few times helped me build the cash to purchase bigger properties. I also recommend using a broker because once you build a relationship with them it is easier to get loans easier. Banks are limited but brokers have a variety of ways on making things happen. In addition, get to know your local credit unions; it is amazing what they will do for you once they know you. I crashed and got burned when I first started but I didn't know about real estate investing. Use this forums, listen to podcast, and get to know people that are actually doing this actively. Please don't hasitate if you need advise. I am not rich buddy but financially freedom is becoming a realistic goal for me and I am just an average guy. Don't think too much and take the first step.

Wendell De Guzman · Answer

Here's an example of a successful BRRRR.

Address: 2520 Heather Rd, Homewood

Purchase price: $70,000Repairs: $30,000At the time we bought it, the ARV is $140,000.

We sold it rent to own for $1590/month rent, we collected $5,000 (non refundable option fee) with an Option price for $150,000.

12 months later, the property appraised for $168,700 so we are ready to refinance out of it. When we refi, we will pull out our $100,000 out so we can reinvest it. The fact that the property is worth close to $170,000 is a great benefit to our buyer. When they close on their lease option, they will have a house with $20K+ equity.

If they default on their lease and option, we take back the house and can sell it at a higher price. We are in a "lose position" because we bought the house in the right area that we know would appreciate and sold it on a rent to own basis. This allows us to refinance so we can reinvest the money in our next deal.

Mark Avery · Answer

Hi Pat, I agree with @Carlos Velasquez that there are opportunities in CT.  Starting small and making sure the numbers work.  Yes, the property taxes are higher than many states but the stability in much of it's areas allows for solid investing.  Best wishes, Mark

Carlos Velasquez · Answer

@Pat McCandless, I apologize for the typos but I have a full time job on 3rd shift and I'm beggining to drift away, lol.

Pat McCandless · Answer

@Rosston Smith I agree, I just don't have family members to borrow from and I'm not sure how to go about it with anyone else since I don't have a history with REI yet.  Any tips on how to go about that?

Manuel Angeles · Answer

@Pat McCandless For BRRRR deals, lenders will always look at the Purchase Price, As-Is value, rehab budget, After Repair Value, Projected Net Income, and whether or not the Income Property will cover the debt service.

Mike B. · Answer

it Could work within a yr... Many banks and even private money lending groups want 6 month seasoning or ownership of the property before providing re-fi, heloc, etc.

You have to factor in your hard money costs into your rental property's operating expenses and see if your net income is still enough to make it worth it....

Regardless of the scenario, hard money will almost always be more expensive and eat more profits than private or commercial loans, and nothing beats cash.

In any investment deal, there are so many variables and everything truly depends on your strategy and circumstances, there's rarely one simple fits-all answer.

Pat McCandless · Answer

@Mike B. so would you say that hard money shouldn't be used for the BRRRR strategy unless you have a property with a huge discount?  From posts that I've read on the BRRRR strategy you would need to wait a minimum of 6 months after purchase for the appraisal to not be effected by your purchase price.  As long as you can find a tenant and refinance within the 6-12 months after purchase it should work using a HML right?

Mike B. · Answer

Hard money is expensive and really only worth it for terms less than a year, ideally 6 months or less, when you don't have the cash available on hand for acquisition and rennovation, to pepare for refinance or retail sale.  If you're going to do hard money on a rental it should be just for temporary purpose to bridge the gap. There's lots of options out there so shop around.

BRRRR Success Stories with HML?

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