Seller-Financing / BRRRR Hybrid ~ Can I Do This?

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Seller-Financing / BRRRR Hybrid ~ Can I Do This?

John Winters
Member since 2021 · 18 posts · 5 votes

Greetings BP's Community!

I don't know how "innovative" this is or isn't, but I'm still working at my first property.  I have a property in need of renovation.  The seller is agreeable to do some form of seller-financing with me, and I'm agreeing to pay $105,000 for the property and flexible agreement.  I plan to do much of the work myself.  It's currently structured as a single-family, and I'll convert it to a duplex or triplex...renting out each unit as it is ready, and likely move into one too.  That's just some context.  I'm open to input/tips regarding any of this, but here is my main question right now:  

CAN I DO THIS plan outlined below if the owner agrees, AND/OR is there a more financially-sensible approach?  

Step One: I pay seller an agreed upon down payment (or do no-money down, if agreeable).

Step Two:  Record the promissory note that details arrangement for this seller-assist sale/purchase.  Property title is transferred to me.

Step Three:  Monthly payments are agreed to be delayed for 6-8 months while I bring the property back to Life (rehab).  I rent out a unit or two as they are ready, still with plans to move into the final unit once completed.

Step Four: Once the property is restored, I take out a HELOC/equity loan to pay the seller the remaining due (likely ~$100,000).

Step Five: Property is renting, seller is paid, and rental income pays back the HELOC/equity loan + cash flow.

This seems to be a twist on BRRRR that includes seller-financing to get started and a HELOC/equity loan used to pay the seller (balloon payment) instead of a mortgage.

Am I missing anything? 

Thanks for any and all constructive feedback!


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  • Chris SeveneyBusiness Member
    Moderator
    Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
    4y

    @John Winters

    Yes it can be done if seller will defer internet - maybe also consider interest only payments during that time

    Have you checked with your local zoning to confirm a single family can be converted into a duplex or triplex?

    Doing this will still have considerable costs just in materials. Do you have the $ for that ?

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  • Don KonipolBusiness Member
    Investor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votes
    4y
    Quote from @John Winters:

    Greetings BP's Community!

    I don't know how "innovative" this is or isn't, but I'm still working at my first property.  I have a property in need of renovation.  The seller is agreeable to do some form of seller-financing with me, and I'm agreeing to pay $105,000 for the property and flexible agreement.  I plan to do much of the work myself.  It's currently structured as a single-family, and I'll convert it to a duplex or triplex...renting out each unit as it is ready, and likely move into one too.  That's just some context.  I'm open to input/tips regarding any of this, but here is my main question right now:  

    CAN I DO THIS plan outlined below if the owner agrees, AND/OR is there a more financially-sensible approach?  

    Step One: I pay seller an agreed upon down payment (or do no-money down, if agreeable).

    Step Two:  Record the promissory note that details arrangement for this seller-assist sale/purchase.  Property title is transferred to me.

    Step Three:  Monthly payments are agreed to be delayed for 6-8 months while I bring the property back to Life (rehab).  I rent out a unit or two as they are ready, still with plans to move into the final unit once completed.

    Step Four: Once the property is restored, I take out a HELOC/equity loan to pay the seller the remaining due (likely ~$100,000).

    Step Five: Property is renting, seller is paid, and rental income pays back the HELOC/equity loan + cash flow.

    This seems to be a twist on BRRRR that includes seller-financing to get started and a HELOC/equity loan used to pay the seller (balloon payment) instead of a mortgage.

    Am I missing anything? 

    Thanks for any and all constructive feedback!


    You’re biting off quite a large chunk for your first real estate investment.
    sure, it can be done, and given the right market, location, and purchase price can be done quite profitably.
    But, there are a number of questions you need to ask yourself….
    Do you have the expertise to manage such an extensive renovation?
    Do you have the capital to pay for the renovation?
    Do you have sufficient capital reserve should the renovation cost more, take longer, or fail to lease up right away?
    Do you have the time available to handle the renovation?
    Do you want such an intensive hands on real estate investment?
    Are you sure you’ve analyzed the market and profitability projections accurately?

    At a minimum I would advise obtaining a professional (MAI or SRA) appraisal for both an as is and a after stabilized value.  You don’t want to spend $250,000 only to find out you now have a property worth $225,000.  Depending on local area, converting a single family residence into a triplex does not always add value, and often even if it does the increased value may not cover the renovation costs.
    Finally, I would place a value of your labor, and not just assume “it’s free” because you choose not to pay yourself anything.  The investors that don’t place a cost on their own labor never seem to get out of the employee mold, they’ve just substituted employers.


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  • John Winters
    OP
    Member since 2021 · 18 posts · 5 votes
    4y

    @Chris Seveney @Don Konipol

    Chris and Don, good morning to you both -- and thank you both for confirming it can be done.  It's really helpful to be confident that the premise/approach is possible.  

    Also, I appreciate your questions for considerations, all great questions.  Honestly, I'm in contemplation of a few of them.  I'm considering two projects right now, this one and one that is much simpler to get started.  This one has more risk, but will set me up better for future projects/investments. 

    Chris, thank you for 'interest-only payment' idea.  I like that as a stronger offer. Also, if you don't mind, is there a specific place in the paperwork/process that the owner would defer interest?

    Don, thank you for the appraisal advice and reminder to put a value on my time and work.  My goal is, in exchange for my time and work, I have a place to live and financial means to spring into a second project.  This first one will just take longer to achieve that, is the plan.

    In the end, capital for the renovation is my biggest concern right now.  Also, I may ask a 'structure guy' I know to do a walk-through with me to get some feedback on the extent of structural work.  It appears to be light work in that regard, but I would value a second opinion for that too.  


    Thanks again!

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