BRRRRing for the first time?

Question

How is it that people generally finance a BRRRR deal?  Hard money, transitioned to a conventional loan, right?  Is there another, better way to do it?  House hacking? I’m just wondering the best way to approach this correctly?

Brock Mogensen · Answer

House hacking is a good way to do it.  That way you can leverage the FHA loan. That's what I did for my first deal.

Andrew Syrios · Answer

Hard money is very expensive and, if possible, something I would try to avoid. If you can get a private loan from someone you know or meet, that's our favorite way (we usually pay 8-9% percent interest-only with no points). Partnering with someone is also a possibility if you don't have enough money. Or if you have equity in your home, using a HELOC. You could also save up for a down payment and use a bank loan, then refinance. I'm not a big fan of this option as you have two sets of loan fees, but it's there as well.

Anthony Marin · Answer

@Richard S Myers

How to finance depends on your situation as there are many different ways.  If you work at a job and have W2 income,I would suggest using an FHA loan, if you want less leverage you can conventional 20% down financing.  If FHA is not available to you and you don't have 20% then a Hard Money loan is another good option but since this is your first one I would suggest you get a property with a light rehab because Hard Money is not forgiving if you encounter issues.

Bonnie Low · Answer

Hard money is common when you're picking up a really distressed property that the banks won't lend on. However, it doesn't have to be that bad for it to be a BRRRR. You might find a place that will go conventional financing. Maybe it needs cosmetic updates, or it has a lot of unused space that you plan to convert to extra bedrooms/baths and have the cash to do so. Or it could even be a property that IS distressed but you go the 203k route for repairs. Any and all of those are options. We're looking at a place that will qualify for conventional financing, but the owner is selling well below market rates because she just wants to get rid of the responsibility, doesn't want Realtors and buyers going through her home and she wants to move quickly to another state to be near her daughter. The main thing is to buy something well below the ARV you're shooting for. Know that most banks are only doing 70-75% LTV cash out refi at the most so you're going to need to leave some equity in the deal - and that means you either brought that equity to the deal via a generous down payment or you forced that equity via improvements. Either way, it almost always requires an infusion of your own cash unless you're lucky enough to find a HML who will also finance your improvements. Some will. But again, with the BRRRR strategy, you need to have enough equity to pull most or all of your money back out.

Richard S Myers · Answer

Thanks! I appreciate the feedback!

BRRRRing for the first time?

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