Creative Financing and BRRRR Deals

[Michael Temple]

I have been struggling to get some deals put together for the last 12 months or so. I keep running into a few different roadblocks, most related to financing. I tried securing a commercial line of credit on a free and clear property that I own, but that didn't work out. I have also looked into using some of the lenders on BP, but the issue is the minimum loan sizes for most of them. Most will not lend below a certain amount. The lowest I found is 63K on the purchase price. The issue with that is that in my market a decent rental property can be had for 65-80K that pulls in $800-900 or more per month depending on location and school district. So to use BRRRR I need to be purchasing a beat to hell house for about 20-30K with rehab on top of that so that when all is said and done I will have a house worth 75-80K. That rules out using most of the BP lenders.

After pondering this issue a bit I started wondering if the approach should be a temporary use of creative financing. Have a seller hold the note for 18 months with a balloon payment (so they know they are getting their money back relatively quick) or possibly a temporary subject to if they owe the bank. So I buy on subject to, take over the payments and have the seller take a second for their equity (either long term or with balloon depending on the situation).

In both cases, I am thinking that at least temporarily I just need to come up with the cash for my rehab, which is much more doable rather than coming up with purchase price, closing costs, taxes, etc. AND rehab, which isn't doable and as stated above lenders on BP are probably out. So that leaves me having to come up with 100% of everything out of cash reserves. Not possible right now. However coming up with 30-40K for rehab is possible, especially if I will refinance when it is all over and pull all this cashback out, ala BRRRR.

I would think this is more appealing to the seller because they are only holding the note short term and then they will be cashed out. I won't have to come up with HUGE pile of money to crack the whole nut at once and I am still using BRRRR in the end. Plus I eliminate a lot of financing costs, interests, and fees I would have by using a lender. The other advantage is since most lenders have a minimum of 6 months of seasoning I wouldn't be paying high per month interest payments while the house just sits and seasons. This might allow me to offer a higher purchase price since I don't have to account for all of that interest in my upfront numbers.

I thought this was pretty interesting and creative, which leads me to wonder if I am totally overlooking something that someone can point out a flaw in my thinking. I would love some feedback on an approach like this.