Almost ready to purchase first BRRR property!

[Corey Collins]

Hi all,

I'm putting some final touches on my plans to purchase my first BRRR property. I wanted to cover a couple aspects and see if anyone can help tie up loose ends. Most of my misunderstanding/questions pertain to financing so hopefully I can get some help there.

Buy:
From my understanding, this should be a cash purchase. I will likely have to deal with a hard money lender. Alternatively, I have owned a separate LLC for 3+ years which could probably qualify for a large enough business line of credit to purchase outright. That being said, I wouldn't want the LLC utilizing the line of credit to own the property long term (too much risk once renting). I'm not sure if I would be able to transfer the ownership to a new LLC if purchased with a line of credit or even put into an LLC once refinanced.

Rehab:
For a first deal, I don't want to go too crazy with the rehab. What renovations do you BRRR experts feel give the most ROI on appreciation and rents? Also, how much forced appreciation is realistic in terms of a percentage to rehab costs? I feel comfortable with basic work such as paint, floors, kitchen upgrades, and maybe adding a bedroom/bathroom with the help of a contractor.

Here a rough example with figures I just made up:
Purchase – 120k
Rehab – 15k
ARV – 170k

Forced appreciation on rehab – additional 35k or 233% of rehab cost

Does this sound right or way off?

Rent:
Probably worthy of a good discussion but not the main focus of this post (yet?).

Refinance:
Ok here is where I begin to feel most uncertainty. For example, let's just say I purchase with hard money. I would have a lender lined up prior to purchase who would be willing to cash out refi on the property. Since the property would have originally been purchased cash I would expect to receive roughly 70-80% LTV on that cash-out. I would then take the refi funds and then pay off the hard money loan and recoup the personal investment.

How difficult is the refinance process? What are the steps involved? Do I need to hire an appraiser to come appraise the property after the renovations are completed? I can imagine how devastating it would be to get a great deal but get stuck with a hard money loan long term because you can’t refinance out. Anything I should look out for besides speaking with banks PRIOR to making a purchase?

Repeat:
Do it all again!

Am I missing anything vital? I know it’s a lot of questions upfront but I can think of no better place than here to find the answers I’m looking for.

Thanks in advance!

[Alexander Felice]

rehab - I would be careful of 'forced' appreciation. Know your comps, and know your ARV, don't assume you can bump it. Buy your profit by changing the purchase price, not by changing what you think it will appraise for.

refinance - the best advice I can give is to talk to your lender before you purchase. This will save so many headaches. You might be able to use delayed financing, and you will want to have their program in mind before you close HUD. Don't buy a house on expensive debt then assume anything, KNOW! Talk to a few lenders, find someone who knows what you're trying to do and can help you accomplish it BEFORE YOU START.

rehab - shouldn't matter the scope, proper estimation is all that matters. Last house I bought was 44K and the rehab was 28k (63%) but the bigger the rehab the more people it scares off, which leaves you with opportunity. Don't be scared off by big rehabs, but do be properly prepared.