Help - creative financing for a co-op BRRRR (first time investor)

[Gustavo Nascimento]

I'm interested on buying a co-op investment property for a BRRRR (my first investment property in the US, $250k asking price, $400k ARV, $50k rehab costs), but I'm not willing to pay cash for it. I can afford it but I don't want to leave all this money stuck there. I don't own a property right now, I rent my primary residence, so I can't leverage DSCR loans. Any ideas how I can make this deal work? Maybe private lenders? Thanks, Gustavo.

[Jacob St. Martin]

Hello Gustavo! First, to my knowledge you do not need to own any property to utilize a DSCR loan. Depending on the lender you talk to they will either look at the finances of the deal and ensure that their will be enough cash flow and/or they will look at your personal finances to see if you have enough reserves and can make the payments if something goes wrong. Since you don't have a track record they definitely will look at your finances and will want you to have healthy reserves.

Alternatively, you could look into private money or hard money. If you want to get the purchase price and rehab financed this is the way to go. However, you are going to pay a lot for access to that money. Without having a track record the terms you get will most likely be 3 points up front and a 12% interest rate, interest only payments, with a 12 month balloon. If you are planning to refi into a conventional loan, the seasoning period is now 12 months so you would be paying $9,000 up front as a fee and $36,000 in interest over that 12 month period. If you refinance into a DSCR loan you don't have to wait 12 months and can avoid paying a lot of that interest.

I will say that I don't see any holding costs in your calculation. You need to factor in your debt and utility payments for the time between closing and refinancing. Especially if you use hard money, this could be substantial enough to kill the deal if you don't plan for it. 

I hope this is helpful, feel free to reach out if you have any additional questions!