How do I structure financing in order to scale using BRRRR?

[Chris Pohlson]

Hi guys. I'm hoping wiser minds can help me think through a few things.  

My goal is to get to 500 units. I own 7 units (3 houses and a 4 plex) and I'm getting ready to sign my first commercial loan to complete a BRRRR. So far my purchases have looked like this:

Buy with cash

Rehab with cash

Go to the bank for a refi

When I do that, I find that I either severely restrict or stop my marketing because most of my resources are tied up in my deal(s). That in turn limits me to about 1-3 deals a year while I wait for equity to build. I would like to be doing 1-3 deals a month. There has to be a better way.

I was thinking of asking my commercial banker for a $500k line (to start with) that's frozen until I come in to the bank with a purchase agreement. Using easy numbers it would look like this: I find a home with an ARV of $200k. I purchase for $100k with the bank lending $80k off that line and I kick in $20k. Rehab costs $50k and again I kick in 20% with the bank financing $40k from said line. After an appraisal, refi into a 20 year vanilla commercial loan, pay my line and myself back, and repeat.

Instead of being all in for $150k, I'm only in for $30k and the bank is never over 80% LTV and their money is always secured.

Has anyone else started similarly or employed that strategy?  

Is it a reasonable request to bring to a commercial banker? 

Other than partnering and syndication (exploring both), what financing strategies have you found successful in helping scale your rental business?  

I should mention I can't find a hard money lender that lends in my state to save my life.  I've contacted about 20 and all say no dice-they can't even look at the deal.  Sooooo...if you have a solution there, I'd love to talk.

Thanks guys and gals!

[Anna Buffkin]

@Chris Pohlson

No advice on how to get to 500 doors as I only own 7, but am closing on number 8 on Monday.  This will not get you to 500 doors in a hurry, but this is how my current deal which I am closing on Monday looks:

3 bed/1.5 bath 1700 sq ft SFH in C class area

Purchase Price: $59k

Appraisal: $105k as is; estimated $124k with stated rehab per appraiser

Rehab: $20k ($17k is in the loan the other $3k I am estimating for as things always happen)

Estimated Rent: $925-$975 

Loan Terms:  The loan is a 20 year term with a 5 year balloon from a local credit union.  The loan covers 80% of the purchase price and 100% of the rehab cost as long as the total does not exceed 80% of the appraised value.   

There is no seasoning.  I plan to refine the loan as soon as I have tenants moved in. Of the $80k needed to purchase and rehab, I am only bringing about $14.5k to the closing table which I plan to get back in May.