Rental Property Investor · Smyrna, GA · Member since 2016 · 86 posts · 27 votes
Hey All,
I'm a big proponent of the BRRRR strategy. I started acquiring my first personal units last year & am now up to 6 single family units doing BRRRR the traditional way. Getting my cash back out of each deal is priority number 1 for me.
Which brings me to my next thought. With increased interest rates, owner financing or subject to deals are becoming more & more attractive. But like traditional BRRRR deals, I would think there is a reason someone would be willing to sell their home in this fashion (distress). I would love to attempt to buy some of these types of deals, but I have not figured out the rehab portion yet. How are folks getting their rehab money back out of these deals without doing a traditional refinance & ruining the interest rate gained by doing a subject to deal in the first place?
Residential Real Estate Investor · Kansas City, MO · Member since 2014 · 10k+ posts · 5k+ votes
3y
That's the biggest reason we don't do subject to and owner finance very often. Rarely will the seller lend you any of the rehab too. Thereby, you basically have to refinance with a bank to pull out the rehab money (assuming you got a good enough deal to do so).
Going forward though, with rates having gone up so much, subject to deals could be very lucrative given how many 3% ish, 30-year fixed loans are out there. (Although this time around, the banks might actually call them due so that's something to be cautious of.) But I would aim for ones that don't need much work. You don't need a great deal (assuming you're holding) if you can assume debt like that. The financing makes the deal great.
Investor & Agent · Tulsa, OK · Member since 2016 · 1k+ posts · 1k+ votes
3y
Congrats on your success, and let me just say I’m wanting to follow this thread to see if anyone has any ideas. I can’t think of any myself.
I own a small growing portfolio myself, and, I’ve got a few deals I’ve been negotiating on and off in a similar way…although for me I would hypothetically, if I can get the sellers to execute, refi from an owner carry / sub 2 into my own permanent financing. Even if it’s a higher rate, even if it’s not as well amortized, etc etc - I just would feel more comfortable that way. I think that’s in part because in my case my negotiation has been something like “yes Mr Seller, I can pay you that much money…but it will be after you sell to me on my terms (owner carry) and we structure a 12 month balloon, upon which I will refinance the property and pay you every penny owed plus interest.” So in fairness, now that I think about it, maybe it’s my own fault as I’ve approached it as, hey, I can get you that money fast, like, within a year.
Also I just LOVE brrrr so much, yes if you refi out from a sub2 or Owner Carry etc you are likely going to see not as good of a rate, but, you have a good shot at recouping all capital invested on the rehab and every time I have done that so far it feels like Christmas! Ha.
I am actually wondering if anyone else feels the same as it seems safer that way…But I could be really mistaken. Hopefully your thread gets bumped here and theres some diamonds that get dropped. Thanks for the good post.
Rental Property Investor · Smyrna, GA · Member since 2016 · 86 posts · 27 votes
3y
Makes sense. Idk, for me personally, if I'm just going to refinance in a year or so I'd rather just buy the house traditionally & not deal with the nuance of sub 2/owner finance, etc.
Residential Real Estate Investor · Kansas City, MO · Member since 2014 · 10k+ posts · 5k+ votes
3y
That's the biggest reason we don't do subject to and owner finance very often. Rarely will the seller lend you any of the rehab too. Thereby, you basically have to refinance with a bank to pull out the rehab money (assuming you got a good enough deal to do so).
Going forward though, with rates having gone up so much, subject to deals could be very lucrative given how many 3% ish, 30-year fixed loans are out there. (Although this time around, the banks might actually call them due so that's something to be cautious of.) But I would aim for ones that don't need much work. You don't need a great deal (assuming you're holding) if you can assume debt like that. The financing makes the deal great.
It might just be me, but isn't the ARV all that matters? If you buy a deal subject to, it has a loan value, some $ you pay to get the seller out and a rehab cost plus the mortgage pmts until you refi out. As long as the deal works according to your numbers for the post refi rate and the repair costs, it's a normal BRRRR like @Nate Sanow's example, right?
It might just be me, but isn't the ARV all that matters? If you buy a deal subject to, it has a loan value, some $ you pay to get the seller out and a rehab cost plus the mortgage pmts until you refi out. As long as the deal works according to your numbers for the post refi rate and the repair costs, it's a normal BRRRR like @Nate Sanow's example, right?
That's my line of thinking. Your interest rate is higher, but so are your rents. At the end of the day, you should still be making more money post-refinance. If you aren't, it wasn't a deal to begin with. You can also refinance a 2nd time once rates come down. If you only look at a deal with today's rates in mind, you're not going to build long-term wealth.
Residential Real Estate Investor · Kansas City, MO · Member since 2014 · 10k+ posts · 5k+ votes
3y
We usually don't get a bank loan up front so on current BRRRRs we're just having to eat the high interest rates as best we can. Unfortunately, I don't think the traditional BRRRR method works with seller financing/subject to in this market. You could consider getting a private loan second although, it should be noted, banks don't tend to allow that. Of course, they also don't allow subject tos and they technically trigger the due on sales clause. So you are taking a risk if you go that way.