Funding to Cover Rehab Costs for BRRRR Strategy

[Sheri L.]

Hi fellow BPers,

We're in escrow on a townhouse in Washington, DC, and we're using the BRRRR strategy. We're planning to create a separate basement unit apartment and do some other updates.

We're using conventional financing for the purchase with 25% down, and we can cover a portion of the rehab with our own funds.  We want to get funding to cover the approximately $100,000 remaining rehab budget.  

What is the best way to get financing to cover the $100,000 rehab costs (e.g., loan from a bank, gap funding, hard money, etc.)? Is there a certain percentage of ARV they typically would fund up to?

Thanks for your help.

Sheri

[Andrew Michael]

Hi @Sheri L. 

It is possible that you can find a second through private money or very select hard money lenders but it is unlikely as most lending institutions are going to want to be in first position.  Depending on the equity in the deal some may go for it.  

One option I would suggest is funding the deal with a hard money lender and then doing a loan modification which will drop the interest rate and put you in a 3 year rental loan.  This gives you time to season the property and figure out your long term bank financing.  The other benefit to this option is by simply modifying the loan you save on a second set of closing costs and immediately can place tenants/ begin cash flowing.