Funding Strategies for a BRRRR Investment
Lender · Orlando, FL · Member since 2018 · 173 posts · 66 votes
Hey everyone,
Lately I have been researching a lot into the BRRRR strategy and hope to use this style of investing, however, paying cash for a property isn't the most likely scenario to play out in my case. I am very frugal and am already saving every penny I can to invest in real estate, but saving up for a property would take a lot of time. That being said, I was wondering if anyone here has used different strategies to finance the property without having to put too much down, such as a HML/Private Money/etc. If so, how did you finance it and would you recommend the way you did it? I would use a HML, but being that they are a little more pricey/risky for a refinance strategy, I am not sure it would be the best course of action. Thanks in advanced for any advice! Hope you all have a great one!
It really depends on the deal! I have used private money lenders for 100% of all my acquisitions and have used almost "0" of my own cash to get the deals done!
It is really just using simple math to figure it out!
Banks will usually lend 75% of appraised value for a refinance. (It is important you find a refi lender that does not require seasoning periods by using the delayed financing option)
So your goal is to find, buy, renovate and refi a property all in for under 75% of ARV.
As you can see it is all about finding a great deal!
If a house will appraise for 100k when it is fixed up, then the bank will lend 75k.
If you can buy this house for 50k and it needs 10k in rehab then the math will look like this: (assuming you borrow the entire 60k from a private or HML at 4pts 12%)
50k- purchase price
10k-rehab cost
1k- closing cost
Total amount needed after private money fees = 61k
Your loan amount would be = $63,550 (This would be what you request from PML or HML to roll the cost of loans into the loan)
Once your rehab is complete and you go to refinance you add in your closing cost (you can get an estimate of fees from you refi lender but my cost usually run about 5k so I will use that here)
So you would end up with a mortgage note with a principal balance of $68,550.
The bank would lend up to 75k and you are essentially out of pocket "0" on this deal! (Actually you would have paid for the appraisal and the interest only payments every month until project is complete)
In my market I have a portfolio full of deals exactly like this! This house would then rent for $950 a month! Who cares how much I paid in fees or interest to the private money guy! I am able to buy an asset worth 100k increase my net worth by 31k and cash flow $150 a month for maybe $1,200 out of pocket (appraisal + interest payment).
The only caveat is finding a lender that will give you a 100% loan, which is easier to do than you think especially if the deal is good like this! I know that was long but I hope it helps!
@Robert Kirkley You can buy a property in an LLC with 20-25% down payment with an llc. You says rates are high you can get a 30 year loan at 6.5 -7.75% with no limit on the amount of properties and no seasoning issues. If the property needs rehab there are other ways to do that. That is part of your cost of being an investors. As long as the property cash flows that is the most important thing.
It really depends on the deal! I have used private money lenders for 100% of all my acquisitions and have used almost "0" of my own cash to get the deals done!
It is really just using simple math to figure it out!
Banks will usually lend 75% of appraised value for a refinance. (It is important you find a refi lender that does not require seasoning periods by using the delayed financing option)
So your goal is to find, buy, renovate and refi a property all in for under 75% of ARV.
As you can see it is all about finding a great deal!
If a house will appraise for 100k when it is fixed up, then the bank will lend 75k.
If you can buy this house for 50k and it needs 10k in rehab then the math will look like this: (assuming you borrow the entire 60k from a private or HML at 4pts 12%)
50k- purchase price
10k-rehab cost
1k- closing cost
Total amount needed after private money fees = 61k
Your loan amount would be = $63,550 (This would be what you request from PML or HML to roll the cost of loans into the loan)
Once your rehab is complete and you go to refinance you add in your closing cost (you can get an estimate of fees from you refi lender but my cost usually run about 5k so I will use that here)
So you would end up with a mortgage note with a principal balance of $68,550.
The bank would lend up to 75k and you are essentially out of pocket "0" on this deal! (Actually you would have paid for the appraisal and the interest only payments every month until project is complete)
In my market I have a portfolio full of deals exactly like this! This house would then rent for $950 a month! Who cares how much I paid in fees or interest to the private money guy! I am able to buy an asset worth 100k increase my net worth by 31k and cash flow $150 a month for maybe $1,200 out of pocket (appraisal + interest payment).
The only caveat is finding a lender that will give you a 100% loan, which is easier to do than you think especially if the deal is good like this! I know that was long but I hope it helps!
@Fred Shatzoff Thanks for responding! My plan is to get a cash flowing asset, but when using the BRRRR strategy, the goal is to take the refinance loan after you rehab the property. I wouldn't turn down a property that would pass my criteria, but in order to implement the BRRRR, I am not sure a conventional loan would be the best option, unless I am missing something?
@Robert Kirkley A Conventional loan will not work.
@Stephen Akindona Thanks so much for sharing your advice! One thing I know I need to work on is the math behind the deals. Over the next week I will be working on my goals, so I will define a strategy to implement to start making moves. Your explanation of a deal in simple terms really helped me grasp the idea of how PML or HML could be used in this situation. Brandon always says in the podcasts that if you use a HML, all you have to do is plug in the costs of borrowing that money into your analysis and you won't have to worry about them ruining the deal.
I will have to look around for a refi lender in my area. I wasn't aware of the price of the fees, so thanks for sharing that! It seems like the time to turnover the property is as important as if you were completing a flip so you don't have a large sum of holding costs. The deals you have done sounds incredible! This is definitely what I want to focus on when I start looking for properties. It's great to read over your experiences and see how successful you have become using the strategy. I love that you can get most, if not all, of your money back through a refinance and create an almost infinite return of your money through cash flow every month.
That is exactly what I needed to read. Very excited to continue my education about this strategy and how I can use it in the markets I know. Thank you!
@Robert Kirkley, no problem reach out anytime, also pm me I can get you connected with my lender. I believe he is a national lender!