Have loan/money questions

[Keith Blakeney]

On brrr strategy can you get your rehab money included in your loan? Realistically, if so, how likely are lenders to do this and are u killing your refinance potential before you even start? 

[Gene Hacker]

The way I do it is that I buy properties with major distress at a deep discount.  Properties like this are generally not bank financeable.  I use private lending or my own cash to buy.  Generally, I use my own cash for rehab money.  Once the property is fully rehabbed and stabilized, then I refinance with long-term fixed bank financing and I can usually pay off the original private loan and recoup all of the rehab funds I contributed.  

This was much easier when prices were appreciating quickly.  

[Jack Mawer]

If you are using a hard money loan, most lenders will lend a certain percentage (varies by lender) of the purchase price + rehab costs. You would still be able to do a rate-term refinance after the rehab is completed which would cover your hard money debt or you may even be able to get cash out of the property on top of paying off your existing loan balance, depending on your lenders seasoning requirements. 

[Keith Blakeney]

I am considering a3 unit property, in distress, with 3 mon2mon leases. Could i consider refi after rehabbing one unit at a time. if they are all on the same plot or is that kind of a silly proposition and not a possibility.

situation is like u said, deep in distress which means alot of rehab capital that i may not have enough cash for. 

[Keith Blakeney]

It's a solid neighborhood and this is seriously the worst property in there.  I can remove tenants 1 at a time to rehab bcz they're all month to month. 

[Edwin Epperson]

@Keith Blakeney, while I am by no means an "industry expert", I do lend out my personal capital as well as broker capital from the secondary markets and other "institutional" lenders. What you have is one of the core heart-aches of the BRRRR strategy. You have two different financing needs. The first is the Buy and Rehab or the "B" and first "R" in BRRRR. The second financing need is the third "R" in BRRRR which is Refinance. There is no capital available right now (from businesses anyway) that answers both these financing need with one loan product. You will have to borrow Purchase and Renovation capital and then get a new loan for the 30yr fixed rate loan also called a "DSCR Loan". Just know that the DSCR Loan is a "wallstreet" product, and wallstreet is very adverse to risks, especially in the mortgage space (laughable considering what happened in 08', yet I digress). As the economy capitulates and inflation continues to erode the power of the dollar, Wallstreet will become more bearish on "high risk" loans. They consider loans to investors as "high risk", though in my opinion, they are safer than owner-occupied loans, which are the holy grail of so many funds, and the undergirding support for the bond market.

My humble recommendation is to be UBER conservative on your projections for your ARV #'s and realize that the ARV's (future value) in today's market will not be the same in the realized future market. My prediction is that values over the next 2 - 3 quarters will generally see a 10 - 15% correction on avg. Though in some parts of the country that correction could very well mimic 08" price corrections. Also keep this in the back of your mind, that the lenders today, offering DSCR products have already changed their underwriting, and guidelines for these products starting Feb of 22', and they seem to constantly be changing (for the worse). High cash reserve requirements, lower LTV allowances, higher min. DSCR's, higher min. credit score requirements, and even lender adjusted valautions. This simply means that the lender is taking mitigation measures by TODAY adjusting for the presumed price correction expected on the horizon. So if they (Wallstreet Quants) believe that the future ARV in 6 months is going to be 10% less they may factor that in for today's prices. Example You believe that the property ARV will be $300K, and the Appraisal you receive states it will be $300K, yet the lender will apply a "discount" to the value of 5 - 10% today, and then base their max LTV's on the adjusted valuation. Now their ARV that THEY will use is $270K and their LTVs are going to be based on that $270K. It's already happening. As @Gene Hacker mentioned you MUST become ultra conservative in your offer prices.  If you cannot buy a property for 50% OR LESS of ARV, and if your purchase price is not less than 70% of As-Is value then its not a deal to have on your balance sheet int he coming quarters.

All of this is my humble opinion of course, and I'm glad to be proved wrong.  My gut says though I'm not being conservative enough.  Only time will tell.

[Ryan Stuckey]

Quote from @Keith Blakeney:

I am considering a3 unit property, in distress, with 3 mon2mon leases. Could i consider refi after rehabbing one unit at a time. if they are all on the same plot or is that kind of a silly proposition and not a possibility.

situation is like u said, deep in distress which means alot of rehab capital that i may not have enough cash for. 

 A piecemeal refi like that won't happen, but with a hard money fix and flip loan, there is a rehab funding component that will allow you to get reimbursed along the way (i.e. spend a max 1/3 of rehab out of pocket before getting a draw).

[Eliott Elias]

Yes you can, you need to take out hard money to fund your projects. Most hard money lenders require a 15% down payment on the entire loan 

[Stephanie P.]

Quote from @Keith Blakeney:

On brrr strategy can you get your rehab money included in your loan? Realistically, if so, how likely are lenders to do this and are u killing your refinance potential before you even start? 

 The key to this type of strategy is to buy it right.  A house that's going to need rehab is not going to sell at the top of the market; actually far from it.  You should look for something that's around 50% of the top of the market and then only put another 20% back in for rehab.  Then you've got a solid deal that you can purchase, get all of the rehab financed and then refinance into a long term loan product.

It's two products; the first is the acquisition and rehab loan and the second is the long term refinance.

[Paul Garwol]

There are several lenders other than Hard Money lenders that offer rehab loans. Most will loan up to 80% of the acquisition and rehab cost. With a strong ARV you should have no problem refinancing and taking your cash out if you plan to hold the property as rental. There is one lender that will let you roll the closing cost, lender fees and 12 monthly payments in during rehab.They will want to know the following.

1. Acquisition price and as is value

2. Rehab Cost

3. ARV