Using hard money for first rental- implement "BRRRR" strategy?

Question

Hi all,

I'm 24 and a newly licensed Realtor in the Cincinnati, OH area. It's a great market with a lot of opportunity but I have very little capital and would most likely not qualify for a loan from a traditional lender. I feel that I've educated myself enough over the past few years to confidently be able to purchase a rental.

Is it a poor/too risky plan to use hard money to purchase my first rental? Is there value in waiting and using my own capital at least for the first investment?

Best,

Jacob

Curt Davis · Answer

Usually, when you get a hard money loan you will need to get out of it in a short amount of time so you will need a conventional lender to take you out. If you do not qualify for bank financing you will not want to get a hard money loan.

Good luck

Jaysen Medhurst · Answer

@Jacob Desch, if the plan is to buy a market-value property, then yes HML is propably going to be too expensive and frankly most HML wouldn't do the loan.

If you're planning to do a BRRRR, then HML can be a great option.

Michele Wax · Answer

If you run the numbers and you have positive cash flow it won't matter which way you go.

If the numbers are good and you really make a profit there is no real benefit to go either way.

Of course you would make more money if you had the capital yourself.

Tag me if you have any other questions.

Good Luck and relax you can do this.

Kris Wong · Answer

1. Hard money is expensive. Typically 1 to 2 points and 10 to 12%. It will be very difficult to find a deal that makes sense in this market with that kind of capital cost.

2. Hard money loans typically need to be paid back in full in 6 to 12 months. I am sure you can find more flexible terms somewhere, but it's not going to be 30 years by any stretch.

Generally speaking, I agree with @Curt Davis. You may be able to find private money that is a little more palatable, if you find the right deal.

Ryan McEnroe · Answer

@Jacob Desch Great question. I'm sure you know all about 203(k) loans but this require only 3.5% down. They can be some effort to obtain and you have to live there for a year like FHA but they're definitely possible. I would also like to know about using hard money for this because it's probably the way I'll go for my next property.

Nurzhan Abenov · Answer

Use HML for BRRRR,  buying at market price will not make sense.

Last year we bought using HML 1bd/1br for $125k. Market price was $150-155k. When refied after 8month it was appraised at $170k. ROI with current mortgage is 8%. Not the best ROI but the market is hot and it’s tough to find 10% or more. Also we have good equity (money on paper lol).

Kris Wong · Answer

To piggyback on what @Jaysen Medhurst said, BRRRR using hard money can be a great option, but in order to refi into a conventional note, you will need to be able show reserves (6 to 12 months worth), and have a reasonable D/I ratio.

Stephanie P. · Answer

I think you should rent for a while and save some money so you can eventually purchase your own home (multi units preferably) and house hack.  Just starting off as a Realtor is difficult and it can take a long time to build up enough credibility to start selling houses regularly.  If your income is irregular, it's not wise to start a career with rental properties.

Using hard money for first rental- implement "BRRRR" strategy?

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