How Would You Finance This Duplex?

[Zach Norton]

Hello BP,

I have purchased two BRRRR properties this year using personal LOCs through my lender. Both homes were purchased with cash and most of the renovations were paid out of pocket. Both are doing well and are rented and making income. I have recently refinanced the first one and currently have $50k LOC money to use. I cannot refinance the second until early December due to the seasoning period, but at that time I will have another $40k available ($90k total).

I have recently come across a duplex in my area that has been on the market for over a year. It is listed at $70k. Both units are currently rented for a total of $1225/month. One tenant is paying $575/mo and has been for the past 7 years- the current owner says he just hasn't raised rent because the guy is a long term tenant (has been there a total of 12 years). He also told me that the other unit was just rented this week for $650/month. After renovations, I believe we can get $700 per unit per month ($1400) which is consistent with local rates. My realtor believes the duplex would be worth somewhere in the low $100's ARV. After walking through both, they definitely need some work. updated kitchens and bathrooms, paint, carpet, etc. The big issue is the foundation. It will need to be repaired by a contractor- luckily we have used a friend on the past two rental properties who always comes in at about 1/2 the cost of competitors in the area (estimate the cost will be somewhere around $10k). I believe we can be out of the total rehab in around $20k. We do most of the other work ourselves.

If I were to continue using the BRRRR strategy and pay cash for the purchase and the rehab with the LOC's, I would need a total of approx. $75-$85k. I would then have all of my LOC money tied up into this property until the 6 month seasoning period and would not be able to capitalize on any other deals that may pop up in that time. In addition, when I went to cash-out refi, I may not recover all of the cash invested if I were to get a low reappraisal. I am wondering if there is a different way to finance the purchase and the rehab cost. would you suggest a hard money lender? A conventional loan? Or, forego the deal altogether. How would you finance the deal if presented itself to you?

I have attached a rough analysis based off of a conventional loan situation- 30 year 4.5% and 20% down. This assumed we purchase for $65000, put $20000 into it, and continue the rents as they are currently. total investment would be $36000 cash. monthy cash flow after expenses would be $570 ($6837/year). COC return 18.99%. I believe these to be conservative numbers.

Any advice is greatly appreciated! Thanks in advance!