Do I need hard money loan or cash to do the “buy” stage of BRRRR?

Question

Are there any type of rehab loans or rehab/mortgage loans that I could take out if I have a 20-40% down payment?

HMLs seem to want experience and I don’t have enough to buy 100% cash.

Jeremy H. · Answer

None of these are on market deals - very occasionally - I typically have to spam neighborhoods with marketing (ddm, voicemails, letters, door knocking etc) that I'm interested in buying in. Good wholesalers sometimes have something that fits too. The deals are there, there's just not many of them I find. I have trouble getting the volume up on decent stuff. There's cheap houses in crap locations but that's not worth messing with for me, the crap area just means tenants will repeatedly destroy the house and cause problems

I do it similarly in texas too - usually purchase around 120-130k, rehab is 20-40K, house appraises for 175-200K and rents for 1700-1900. Its the same strategy, just a different geographical location. The market dictates what I can buy for

Stephanie P. · Answer

You should be able to get 80% of the acquisition covered and 100% of the rehab covered on a fix and flip loan.  If you want to convert that same loan to long term, that's doable too after 6 months on title.  Those products are available for non-owner occupied only.

Stephanie

Patrick Eldridge · Answer

My wife and I get a little creative with our financing but let’s say the Asking price is $100,000. We offer them $125,000 with 20% sellers assist, So we get $25,000 sellers assist at closing. There’s no cap on sellers assist with a commercial loan. I’d rather pay an additional $25k to  finance the closing costs and keep are hard cash to buy more properties. You have to explain the math to the sellers, they’ll still be getting there $100k in some cases we offer more to cover the taxes they’d pay on the additional 25k but only if they question it.

Jaron Walling · Answer

@Jeremy Horton "Typical house: pp for 75-100k or so, rehab for 15-25k, appraise for 130-150K, rent for 1200-1300. rehab takes 3-6 months" - That's literally the exact numbers I have and want to replicate in my market. It's nearly impossible at these high prices. Rent needs to catch up too. We're looking for a needle in the haystack.

Steven Goldman · Answer

Mike their are many lenders who will lend to a first time rehabber. In fact, if you do not have experience most hard money lenders  will limit the LTV and expect you to put more money into the deal. You can expect 80-85 percent of the purchase price and 100 percent of the rehab up to 70 percent of the ARV. You should conduct thorough due diligence nd make sure the broker or lender has a good reputation for closing loans. As an investor I enjoy attending meetups, working with newbies and sharing my experience with them. It is very exciting to see someone begin their journey and than succeed at BRRRRing. A good broker will know how to walk you through the entire process including application, closing, scope of work making draws and refinancing.  Be aware you should understand the LTV and refinance process when you to your deal analysis to avoid coming up short on the refinance. Good luck.

Mike Klarman · Answer

We work with first timers.  There's three main factors in the fix n flip/hold program.  Cash.  Credit. Experience.  If you have no experience you need the other two.

The first deal will be the toughest.  If you have 680 credit then you'll get 80% of purchase and 100% of rehab up to 70% ARV.  They aren't gonna let you go crazy on flip 1.  Figure all-in investment is 30% of purchase.  That's 20% down payment.  2% loan fees plus fixed closing costs (3.5%) and the last 6.5% you'll need to show 9 payments.  So for every 100k, you'll need 30k to invest.

Your rate will be 11.5% - 12.5% for flip 1.  You have to pay more for the debt because the bank feels like you are a risk.  With each flip the rate goes down.  For flips 1, 2, 3 you will need 80% down and after the first you'll get 100% rehab.  If you can make it through the first three flips, hold nothing.  Sell when done.  By the time flip 4 rolls around you will have 80k+ in the bank and now you get 90% of purchase and your rate will be low 8s.  That means you can buy something for 350k put 70k into it and sell it for 500k.  You would need to float 35k - can do that with 80k - pay fees 3.5%; can do that - show 9 payments (6.5%); can do that.  Those are the deals you'll be able to afford from then on.

Eventually you want to be a cash buyer and do delayed purchase loans after you close in cash with a 10 day close.  You should get a discount in price for a quick close and another discount for a cash close.  Then you do the loan after and get 90% of your cash back plus the rehab funds in a loan.  Your profit margin goes up on every deal.

Do not fall in love with tying up equity in refis into 30 yr FRM until you can really afford to do so.

I help people get started all the time.  Feel free to reach out if you have any questions.

Jeremy H. · Answer

I mean if the place is livable just do a conventional loan then refi on it. Might cost slightly more but it'll get you in the door w/ approval

We have plenty of banks around here (local) that offer fix & flip type products, no doc loan, dsrc loan that will give 85% of the ARV etc. I'd call around and see what else is available. I'll use a hml or dscr loan with a local bank and do the flip on credit cards (yes I have cash to pay them off but choose to do it this way), then when it's done refi into a 30 year fixed rate commercial loan. Doesn't cost me much, if anything on several of them

Typical house: pp for 75-100k or so, rehab for 15-25k, appraise for 130-150K, rent for 1200-1300. rehab takes 3-6 months depending on labor and materials

Chris Seveney · Answer

@Mike Schorah

Speak with @Upen Patel

Patrick Eldridge · Answer

there’s a cap of 6% sellers assist on non commercial loans but commercial loans have no cap and the bank didn’t even know the answer because no one ever asked. We’ll my bank applies   The uncapped sellers assist towards the 20% downpayment, we’re just responsible for the remainder of the closing costs if any.

Do I need hard money loan or cash to do the “buy” stage of BRRRR?

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