How to finance a BRRRR if you cant pay cash

[Josh Coup]

Dear BP community,

I found a property that I'd like to BRRRR. The asking price is 40k, which I don't have the cash for. The ARV is 60k at least. I haven't seen the inside and can't vouch for how much work needs to be done, but based on Zillow and MLS, the current owner has started several projects throughout the home.

My issue is how to fund this and make sure I can BRRRR. Without the full cash for purchase and rehab, can I do a conventional (I have the 20%) and hard money the rehab. Then refi after seasoning to pull it all out?

Please advise.

Thanks in advance!

[Allan Smith]

First of all, $40k/60k is not looking good. Your margins will be razor thin even if it only needs paint and carpet.

Ways to buy a BRRR in my order of preference: HELOC/LOC, private lender, bank loan, my cash, hard money lender. In sum, you can buy the property any way you want to. Don't overthink it. It's the same as any other property, it's just that your exit strategy is to re-fi and get your cash back.

Yes, you can do conventional and hardmoney rehab. Or get a conventional construction loan, or one from a local bank. No matter how you do it, you'll have to re-fi after seasoning. That varies from bank to bank, but 3 - 6 months is realistic in this banking climate. Make sure you talk to banks about the re-fi before you buy it.

[Joseph Firmin]

@Josh Coup This doesn't sound like a good BRRRR property. First, the best loan you'd be able to refinance to would be an 85% LTV - $51k... It is tough to find a lender for something under $50k... Especially at 85% LTV. If the rehab is light, you can make it work, just find a good portfolio lender. If your rehab goes over that $10k you'll have cash stuck in the property.

[Josh Coup]

Thanks for the valuable input! I wanted to be as conservative as possible since I have yet to land a deal. A 3bd 2bth a block and a half away is listed for 94K. I'll keep an eye on that one. Could be encouraging if it sells. In light of how the market as a whole is, I definitely don't want money left in the deal, since I only have a bare minimum to contribute myself. 

@Allan Smith I see what you mean now, by razor thin margins. It's been on the MLS for about a month and has already dropped by 10k once. I agree that 40 is too much for a BRRRR unless the new appraisal would be 100 or more. Thanks for the financing preference. Unfortunately, we bought our house 2 years ago at a little less than 20% and I looked into a HELOC and it would only be a few thousand if any. I'm going to start looking for partners and looking for Refi companies.

@Joseph Firmin I didn't even think there would be a minimum loan. Thanks for letting me know. I'll make sure to ask those kinds of questions when looking for a refi company.