BRRRR Financing, Homes Equity or Personal savings

[Jeremiah Hammond]

Hey everybody, I am a newbie investor and I have a question. So right now, I am looking to get my first BRRRR deal underway. I am currently living in a Duplex that I have owned for just over a year. My question is should I use the equity in my current property to pay for the down payment and some of the rehab? Or should I use a chunk of my savings? I also have the option of going in with a partner and splitting it. Any feedback would be great.

[Andrew Postell]

@Jeremiah Hammond ok, let's tackle it like this....

If you do a BRRRR property correctly...you won't need any money out of pocket. There have been many an occasion where I have purchase a property with nothing out of pocket or a very small amount ($2k-$5k). That's why the BRRRR method is so effective. It really helps us buying LOTS of properties. Imagine if you had to put down $30k on 10-15 properties; that would be prover $400,000! Anybody here have $400,000 just laying around? No, none of us do. Because if we did, we would already have it in something else making money for us. Since none of us have unlimited resources we HAVE to use the BRRRR method to buy multiple properties.

In theory, a Hard Money Lender (HML) should lend us 75% of the ARV of a property. So if we can BUY and REHAB (needs to be both) at 75% or less, then we can come out of pocket $0...well, there's closing costs.  So let's say we can buy and rehab at 70%....then we can TRULY buy with nothing out of pocket.  And I've heard this before - "My lender will lend me 80% of the purchase price and 90% of the Rehab not to exceed 75%" - that's NOT the same thing as lending 75% of the ARV.  I need 75% of the ARV.  Have to have it.

To provide an example here, if the ARV of a property is $200k, then 75% of $200k = $150,000. That's the limit I need to BUY and REHAB.  And I've heard this before too - "Andrew, I found a property that they are asking $140k and the rehab is $25K, ARV is $200k".....ok, great - It's not your fault they are asking too much.  I have to stick to my numbers.  Otherwise, I can't buy the property.  I still make the offer that fits under the 75% threshold.  Remember how I said I've purchased properties with $0 out of pocket?  That's because there have been several examples of me being the only bidder on a property!  I still make my offer.

Anyway, I hope this helps in some way.  Feel free to ask anything else if you need.  Thanks!