Wanting to get a BRRR started with 30K

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Wanting to get a BRRR started with 30K

Ernesto Sanchez
Rental Property Investor · Dallas, TX · Member since 2019 · 6 posts · 3 votes

Over the last couple years I've been able to save up a good chunk of change and finally decided that my strategy would be to get into rental properties. Im about half way done listening to BRRR by David Greene and I am starting to have a lot of questions.

I live in Dallas where the market is a little high and so 30k won’t buy me much of a property and have enough to rehab. I’ve then looked into hard money, and I figured it would be a great idea considering the amount of money I have.

Has anyone been able to make a BRRR work using hard money as the original short term loan?

The reason I ask is because hard money will lend 70-75% ARV and when it comes down to refinance the banks are typically going to loan 70% ARV as well. So the refinanced loan will be paying off the original loan meaning that if I put anything more that 70% of the ARV into the deal ,to acquire and rehab, I would be leaving it in the deal at the time of refinance. So I'm concerned this could possibly tie most of my capital on my first deal and prevent me from doing a burrr again in the future.

Am I missing something or have a misunderstanding about how to make hard money work on a brrr as the original short term loan?

I would also very much appreciate any tips or different strategies I could use to help me get the ball rolling!

Thanks you in advance!

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Andrew PostellPro Member
Lender · Fort Worth, TX · Member since 2016 · 8k+ posts · 6k+ votes
6y

@Ernesto Sanchez I've seen hundreds of BRRRR properties in the DFW area and the common theme here is buying "OFF MARKET". No MLS properties. The BRRRR can absolutely be a great method but we must target off market properties in order for this strategy to work here. And $30k is plenty enough to get 10 properties in our market with the BRRRR method. Feel free to ask anything additional if you need!

@Andy Webb thanks for the mention!

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  • Andy WebbPro Member
    Rental Property Investor · Carrollton, TX · Member since 2013 · 750 posts · 538 votes
    6y

    @Ernesto Sanchez - my wife and I only do BRRRR-type deals, using hard-money. You are right, the cash needed for a lot of the deals is higher now than a few years ago.

    A few notes: most hard money lenders that I know are now lending at 75% ARV on rentals. Check out Investmark Mortgage - they are local here to DFW and are comprised of experienced investors. They are listed somewhere here on BP I believe.

    Also, when you refi out on the back end, you can refi more than 70%. I typically do 75% LTV. And per a recent conversation I had with @Andrew Postell - you may be able to do even higher; though I would caution about the impact on your cashflow.

    If you don't already, be sure to get out to a number of networking events.  There will be a bunch of them going on to start the new year.

    1Reply
  • Andrew PostellPro Member
    Lender · Fort Worth, TX · Member since 2016 · 8k+ posts · 6k+ votes
    6y

    @Ernesto Sanchez I've seen hundreds of BRRRR properties in the DFW area and the common theme here is buying "OFF MARKET". No MLS properties. The BRRRR can absolutely be a great method but we must target off market properties in order for this strategy to work here. And $30k is plenty enough to get 10 properties in our market with the BRRRR method. Feel free to ask anything additional if you need!

    @Andy Webb thanks for the mention!

    4Reply
  • Ernesto Sanchez
    OP
    Rental Property Investor · Dallas, TX · Member since 2019 · 6 posts · 3 votes
    6y

    @Andrew Postell

    Thank you for the reassurance. Brrrr just wouldn’t work with mls deals then huh?

    I see you’re an agent, do you work with investors like myself? If so, is there anyway I can get on your schedule to see what is available out there?

    0Reply
  • Shion Queen
    Los Angeles, CA · Member since 2018 · 33 posts · 5 votes
    6y

    @Andrew Postell this was a great post. Can you recommend your top 5 ways to find “off the market” properties that are effective?

    1Reply
  • Andrew PostellPro Member
    Lender · Fort Worth, TX · Member since 2016 · 8k+ posts · 6k+ votes
    6y

    @Ernesto Sanchez just wanted to clarify here, I am not a real estate agent. So I cannot help you find deals from the MLS. And MAYBE you can get lucky...but 99.9% of the time, off market deals in Dallas - Fort Worth area. But I am most certainly an investor. And I have been a real estate investor since 2001. Now, having that length of experience doesn't guarantee that I know anything...but I might now a little ;) If you post questions about lending I try to answer all of those that I can. And willing to share any wholesalers I have here locally as well. Here to help in any way that I am able. Thanks!

    1Reply
  • Andrew PostellPro Member
    Lender · Fort Worth, TX · Member since 2016 · 8k+ posts · 6k+ votes
    6y

    @Shion Queen oh geez. You're going to open up a can of worms there!  I'll give some other resources for you to research.  All of these types of strategies could take HOURS to speak about and learn.  And some other forums are also better at answer this type of question.  But here's the articles I would suggest:

    https://www.biggerpockets.com/blog/2015-09-15-6-insider-hacks-finding-off-market-real-estate-deals

    https://www.fortunebuilders.com/off-market-real-estate/

    1Reply
  • Shion Queen
    Los Angeles, CA · Member since 2018 · 33 posts · 5 votes
    6y

    This is great. Some posts make finding deals easy while I find it overwhelming. I see properties on Roofstock for example and then realize I also need a realtor to share rentals and comps and I have yet connect with an OOS professional. 

    0Reply
  • Travis Lemley
    Lender · Dallas, TX · Member since 2017 · 50 posts · 27 votes
    6y

    @Ernesto Sanchez, Andrew is spot on for the most part. $30k is enough to get into a deal or two but unless you find the unicorns you're going to want more capital. I'd suggest a safe flip that will generate $20k or so in profits and then do a rental, then a flip, and so on. This keeps your liquidity up and helps you build the portfolio. You should be able to refinance out of HM as high as 85% LTV with a conventional investment loan. That said the rates stink above 75% and typically kill the cash flow. Reach me directly if you have any further questions. I am both a HM lender and conventionally licensed RMLO so I should be able to answer any of your lending questions.

    Travis John Lemley 

    1Reply
  • Dennis Parslow
    Rental Property Investor · Charlottesville, VA · Member since 2019 · 35 posts · 17 votes
    6y

    Great post, Travis.   I do have more lending questions, as I have a similar status to Ernesto. 

    1. Is a HML more likely to lend money to someone in Ernesto's situation if they are doing a flip or plan to rent it?

    1Reply
  • Travis Lemley
    Lender · Dallas, TX · Member since 2017 · 50 posts · 27 votes
    6y

    @Dennis Parslow, Most HM lenders will have a mild preference one way or the other but not drastically. The HM Lenders that are more risk averse like the Rentals as most the borrowers qualify for conventional Fannie/ Freddie Refinance. They are also smaller loan sizes. The two factors make them less risky loans. The lenders that prefer flips like them because they are typically larder loans (most rental properties are under $300k) and have more margin. In the off chance the lender gets the property they can usually finish the project and break even or get close to it and not lose much. The HM loan for rentals typically have less equity and if you get it back the chance to get whole is less. 

    0Reply
  • Odie Ayaga
    Specialist · Delran, NJ · Member since 2016 · 2k+ posts · 951 votes
    6y

    I would agree with @Travis Lemley that an HML doesn't care which is your exit strategy so long as it's a viable one. Concerning the original question though I'll provide an example and you can tell me if I'm misunderstanding your question @Ernesto Sanchez.

    Let's say you find a property you can purchase for $100k that you're going to rehab for $50K with an ARV of $300k. Yes an HML will typically lend up to 65-75% of ARV, but that's a restriction not an offering. In other words, they'll give you your $150k (presuming you qualify otherwise) not $225k. When you go to refinance, however, you're trying to get (presumably based on your question) the most out that you can so at 70% of ARV the new lender gives you $210k. You now have enough to pay off the original loan and an extra $60k to do with what you please.

    1Reply
  • Travis Lemley
    Lender · Dallas, TX · Member since 2017 · 50 posts · 27 votes
    6y

    @Odie Ayaga - you can do a rate and term refinance with 1 day title seasoning. You cannot do a cash out refinance until you have been in title for 6 months and a day (Fannie/ Freddie). In your example if your hard money loan was $150k and the property appraised at $300k you could refinance at $150k plus closing cost (lets assume $5k) to be zero out of pocket on the refi. You cannot exceed the lesser of 1% of loan amount or $2k on the rate and term (allows for minimal cash out so you dont have to be exact on the loan amount). If there is that much equity it might benefit you to wait and pay the hard money interest for 6 months and close on the day after to pull the equity if you need the capital and have a place to deploy it too. 

    0Reply
  • Odie Ayaga
    Specialist · Delran, NJ · Member since 2016 · 2k+ posts · 951 votes
    6y

    @Travis Lemley thanks for your reply I think that's good info for the OP to have as well. I wasn't speaking to timing just the original question of how 70% ARV HML and 70% ARV on a refi would work out. I will say in addition to your post (and you did specify as well which is good) that a number of hard money lenders nowadays also will do long-term refis and they can do it next day such that the 6 month Fannie/Freddie seasoning wouldn't apply. However, the terms on that and the lenders that will do it will vary. For instance, the lender I was with was loan to cost (LTC) versus ARV on a refi so you wouldn't be getting a loan based on the $300k it would be based off of the $150k that you put in.

    1Reply
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