BRRRR Financing Question

[Howard Handler]

I have a question on financing a BRRRR.

Typically, does one try to include the rehab costs into the original loan or cover the rehab costs in cash?  And if part of the loan, what type of loan is that called and which is the best type of lender for that type of loan?

Thanks in advance!

[Kevin Romines]

Most people that do many BRRRR's will use fix n flip loans. On a fix and flip loan, its will cover 75-90% of the acquisition costs and 100% of the rehab on a draw basis. So that means the materials and work has to be done, a draw request submitted and an inspection to follow and then the draw is disbursed.

There are also many loans that will just cover a percentage of the acquisition and the buyer funds the rehab on their own. It tends to be a quicker loan to close with less documentation required. You also don't have the draw scenario to deal with on the loan so its a quicker and sometimes easier route for buyers to go.

There is also hard money as well. You also want to determine if the buyer wants to do the work themselves and if so, will the particular loan program allow it or does the loan program require a general contractor, licensed, bonded and insured to perform the work? Also each state has its own requirements. My state (Washington) requires all flippers to hold a general contractors license. 

I hope this helps?