I WAS GOING TO WHOLESALE, NOW I WANT TO BRRRR. HOW TO??

Question

Hi Bigger Pockets fam!

I recently put a house under contract that would work for a decent wholesale fee. But now i'm thinking id rather fix it up myself and rent it. I left my W2 job 6 months ago to pursue real estate full time. Is there a way I can purchase this home myself, do the rehab, put a renter in and refinance out? The purchase price is $210,000 and needs about $30,000 worth of work. I only have about $80,000 of my own funds I could put into the deal. Is it possible for me to accomplish this? Perhaps take out a a hard money loan for the purchase price and rehab, fix up the house then put in a renter? I dont know if I can refinance out of it if I don't have a W2 income? Or do I need to have a renter in the property for a minimum of 6 months before I refi out? Any advice would be greatly appreciated!!

The market is Clearwater, Florida if thats relevant at all.

Mya Toohey · Answer

@Dylan Faltus Hey Dylan, I live in Clearwater! I work in Pinellas county and would love to hear about your deal. I would suggest that you wholesale it and build up cash to be able to buy with out a Hard Money loan. Those interest only payments will eat up your profit very fast. You should be able to find a lender that would refi after the fact if you qualify. It's probably a better idea to wait to try and get a loan once you have you taxes done for 2021 so you have it to prove income for this year. Deals will always be there if you are diligent and persistent in your work. One thing you left out is the ARV on the property? Would the deal even work on paper? There are a lot of questions that arise from your situation. I would honestly take the time to build up your network of lenders so when the time comes you know you can do it. Also, most wholesale deals only give you 30 days to sell and close and with what you are saying, with out a relationship already made, you will never close on time. Not to mention, is the home going to pass inspections to be insured if you did a loan. Like I said, there a lot of factors that come into play. Best of Luck!!!!!

Dan Maciejewski · Answer

Whether hard money or conventional lender, you'll want to call a bunch of local lenders to see if they'll be able to help you out. I can tell you that lack of a W2 or any other taxable income is going to hurt a lot. Lenders really want a personal guarantee on single family homes with no rent history. But call around (a lot, possibly), you may find someone that will be able to lend. I've given that advice before and people have found what they are looking for, even if 49/50 lenders can't help, all you need is one.Your best bet may be to find a partner instead of a sole buyer. There may be someone that would partner with you for a pre-determined equity split.NOT LEGAL OR TAX ADVICE: You will probably want to form an entity to purchase in that spells out the equity / ownership splits and lays out exit strategies. Like, will you be able to buy each other out if one want to leave and the other stays. . . things like that.

Sergey Tkachev · Answer

@Dylan Faltus As others have mentioned, it will definitely be tougher to refinance without your W2 if you don't have some other form of income coming it. The ARV will also determine what your LTV will be once you refinance and if you want to base your LTV on the ARV, traditional lenders generally require that you have held the property for 6 months before they consider the new ARV. Depending on your hard money loan terms, you'd need to figure out what your holding costs will be and how it affects your overall numbers. If you have access to private money, that would generally be a safer approach as the costs are generally lower and you can afford to hold the property longer (in case you can't BRRRR it in the timeframe you expect). There are a lot of moving parts here and more details would be needed to properly assess the deal. If you do decide to wholesale it, let me know.

Ron Brady · Answer

@Dylan Faltus We've done 5 BRRRRs over the past three years. Our two cents:1. If you're not already read David Greene's Bigger Pockets book on BRRRR, it is an excellent resource--easy to read and goes through lots of process intricacies.2. Getting a mortgage is easier with a W2 or working with a lender with whom you've previously done a few transactions. We did our early BRRRRs while having W2 jobs, but the most recent one without it. BUT we used the same lender for most of these and thus they were accustomed to working with us and helped us structure our mortgage application to show how our rental and other income meet their underwriting criteria.3. We used a HELOC from our primary residence as the fund source for our upfront purchases and renovations. When we refinanced, we paid off the HELOC and was ready to BRRRR again. If you have equity in your primary residence, this may be an option for you to generate cash.4. We looked at hard money lenders and we learned that, as newer investors, their interest rates were such that we saw little financial yield in the deals we penciled out. This said, there is a yield in learning that we could have gotten from these that MAY have been enough to offset the initially weak financial yield. But, as we shared above, we had the HELOC, so we avoided this.5. As the previous posters suggested, either finding a money partner or building up your cash via wholesaling may be your best bets for now.Good luck!