First BRRRR - I'm on the last two R's

[Chris Momongan]

Started my first BRRRR project in Sept 2022 in Augusta, GA. Purchased house at 87k and Rehab took 3 months and was about 40k. Spent 1 month preparing to get tenant in and chickened out of long term landlord and decided to change strategies and do Short Term Rental. Next two months we furnished the place for 5k while living in it and then bought a new owner occupied home in March 2023 to move into. Our short term rental went live in April, just in time for Masters week. We made enough revenue to cover a third of the years expenses and now addicted and want to scale.

Its early May and looking at options on how to buy our next property. I am looking to refinance. The ARV is 160k which would give us 39k if we did a refi. Was thinking of using that 39k for down payment on a fix and flip hard money loan that would finance 80% of purchase and rehab. Is this how it is usually done? Is there anything I'm not considering or is it that simple? I want the cash needed for the next project to be around 25k so I can use the rest as reserves/emergency fund.

PS: Our current reserves is 10k which makes me nervous.

[Jason Campbell]

My only thought would be to dig deep into the flip and the possible issues that could pop up and stress y’all out.  I call it the “if you give a mouse a cookie “ scenarios. 

You know, when you decide to shore up the gutter and add a few extra screws and realize the facia board is too mushy and once you pull that off the soffit is also rotted but then you find out the rafter is rotted and all of the sudden you’ve peeled back a whole chunk of the house that was well hidden and didn’t catch the eye of the inspector and before you know it, another month goes by and not to mention an additional 10k that wasn’t in the budget.

Make sure you have an inspection from someone who is familiar with fixer uppers and be there on the ground with them like a shadow behind them asking questions and pointing that big flashlight your bring along into all the dark corners. Get a pair of coverall’s and low crawl into the crawl space.
This is the long way around to say that if you are using money from a refi to make your next move it has a bit more gravity then if you pulled the down payment out of your bank roll.  That interest escalates things and carry costs can get uncomfortable. 

You can do this- due diligence is the key