BRRRR with seller financing

[John Armando]

Hi All,

I've identified a property in my area that has been vacant for a number of years (previous owner passed away) and is currently owned free and clear by inheritance, based upon my research + local RE attorney. I am working to connect with the current owner to scope out the property and hope to use the BRRRR approach.

My question is, for the initial financing, I'm hoping to stay as liquid as possible to ensure sufficient cash on hand for the rehab. We have sufficient cash on hand + a HELOC on primary to probably buy with cash (depending on negotiated purchase price), but would then have to get creative for rehabbing, we also don't want to blow our safety net. Based on others experience (knowing cash is king), what are the pros and cons for each initial financing option and do you know of a resource that outlines some of these considerations?

As far as I can tell we have a few options for the initial purchase:

- conventional mortgage

- cash (cash, HELOC, 401k (definitely don't want to touch this, and/or other investments)

- HM/PM (could possibly work with some experienced partners to open up this line)

- seller financing

Estimated numbers:

ARV = ~$310k

Rehab: TBD, is a 1335 sq ft home, in a prime neighborhood, been vacant but exterior looks solid (once we tour the property with our GC, this will help us put hard numbers to the rehab)

Target Purchase: ~$110k and would be willing to go to $150k, such that we could at a minimum have ~$65k in rehab costs built in and still be under 70%ARV for the cash-out Refi. If we have to keep10-15k in the property I'd be ok with that.

Rental Rate: $1300-1600 per month

I'm very interested in going the Seller Financing route so would be interested to hear others thoughts on this approach with a BRRRR.

Kind regards!

[Nicholas Osweiler]

@John Armando I think the first thing you need to do is get a very clear picture of the amount of rehab the property is going to need. I wouldn't even think about putting in an offer until you have that figure as its going to dictate how much you can truly spend on the purchase price. I think the idea of using seller financing is great, plus nailing down the rehab amount will give you more negotiating power with the seller. You are right, cash is king and I've heard too many stories of people losing their shirts when they are short on cash. 

Remember, if the deal is good enough, the money will find you. Consider bringing in a partner if you need more cash. Even though you will have to split some of the profit, 50% of something is better than 0% of nothing. 

Hope this helps and good luck to you!