Using investors with a BRRRR

[Conor Kelly]

Hi BP!

My partner and I are going to attempt to do our first BRRRR deal. We understand how to structure the deal, run numbers on the deal, and most of the logistics.

One thing I’m really struggling to understand is going on title for the property. Now, I believe a typical deal looks like this —- You find a deal, get an investor to put up the capital for a downpayment on a short term loan, renovations and carrying costs. Now, when you go to refinance, should you go on title with the investor or how does that work? It was always my understanding that the investor goes on title (as your debt to income will be too high to do so after doing this a few times) and then you would have a lawyer do up a 3rd party contract stating you own the property and the proceeds 50/50 with the investor

Is there someone out there, Maybe a lender, who might be able to clarify this for me? That would be GREATLY appreciated.

Thank you BP!

[Zorya Belanger]

That is theoretically how it's done. It can definitely be tricky doing it from a far for your first one while not using any of your own money. Are you planning to have someone in that city oversee the project and make sure the contractor is doing his job? Finding an investor might be hard with no track record, especially for 50% as you have to prove why you are worth 50% - what are you bringing to the table? For example, if you are doing all the work to find the great deal plus organizing everything, then that is worth something.  Also have someone who's done it before in that same city analyze your numbers, because if you are using a realtor to find the deal, a general contractor to do the work, expensive short term loan to finance, then there will likely be very little profit left.

As far as the re-finance, whoever is qualifying for the mortgage goes on title. Title and mortgage go together. If you are not helping to qualify, you typically wouldn't be on title, so you'd have a separate legal joint venture agreement showing your interest in the property and the splits. Very very important to have a solid JVA before starting this type of project no matter who your investor is - best friend, parents, or someone else. I've seen TWICE now friends ending their relationship over issues during a BRRR project - and they had a JVA!

I'd be happy to chat more sometime!