BRRRR Lender Relationships

[Desmond Pressey]

Hi BP community!

I'm looking to get my first BRRRR property under contract within the next few days. I'm looking for some advice, and preferably, a lender relationship to do a few BRRRR deals with in the coming years. I'm just getting started, but my 3 year goal is to produce 6 figures of cash flow annually.

Right now I'm working on an off-market deal in Tallahassee FL. I've gotten the inspection done, some contractor estimates, and now I'm looking to partner with a lender to make sure I have the best financing deal structure to purchase, rehab, and then refinance in the next few months. I really like this deal because it's currently a SFH that really is a duplex once the basement unit is rehabbed. And there's a paying tenant in the top unit so early monthly costs are mitigated. Anyways! Any help would be totally appreciated!

Thanks!

[George Despotopoulos]

Hey @Desmond Pressey - for the buy part of a BRRRR you would be looking to work with a bridge or hard money lender. It would be ideal to have a lender that could also refinance you once it's renovated & rented.

As a first time investor, you would likely qualify for 75% - 80% of purchase price & 100% of rehab. Rates should be in the 9% - 10% range at the moment. The initial funding amount (that 75% - 80%) is against the purchase price and should come in around $50k or more. It may be harder to finance deals where the initial funding amount is below $50k but it's still do-able. Your rehab funds are held-back and are disbursed to you in draws -- basically you're reimbursed as you complete line items in your rehab budget/scope of work. The lender should review your scope of work/rehab budget prior to the appraisal/valuation being ordered but again before closing. It's an integral part of the success of your deal. 

When you have the property renovated and rented, you would then go to hopefully the same lender (or if you qualify elsewhere that works too) for a cash-out or rate/term refinance, depending on where the property appraises for now that's it fixed-up and rented. You should be able to get 70% - 75% LTV on a cash-out and 75% - 80% LTV on a rate/term refinance. Rates are low at the moment, I'd expect something in the 5.25% - 5.875% range (potentially 0.25% lower or higher) if your FICO score is above 700 for a 30 year fixed rate, with a 3-5 year prepayment penalty term.

The important things to bring up to any lender you speak with are: your liquidity/source of down-payment, experience, estimated credit score (and any credit issues in the last few years (if any)), as well as your purchase price & rehab budget expectations. Also, of course, ask them certain questions about their process, rates, fees/closing costs, and whether they can do the refi.