Funding Strategies for a BRRRR Investment

[Robert Kirkley]

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!

[Stephen Akindona]

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!