Obtaining Initial Financing for BRRRR

[Griffin Malcolm]

Successfully completed my first house-hack / investment property this year (woohoo!) and am now educating myself on the BRRRR strategy after I've gotten my feet wet. My first property needed a new roof, water and sewer main, and extensive electrical work, so I feel pretty confident with those rockstars in my corner. My agent the first time around was great and I didn't have any issues with my lender, so I feel good about my team there as well.

The BRRRR process makes sense, and I'm ready to dive in, but I'm still hung up on the initial financing. I don't have enough equity for a HELOC, nor do I, or anybody I know, have a pile of cash to throw at a property. Hard-money seems like my only option. Is this correct? If so, do I get the loan before I find a deal, or put in an offer and then go to a hard-money lender? This seems risky, but it also seems risky to take out some monstrous 9% interest loan and have to sit on it for 2 months while deals fall through. Any advice?

[Leo R.]

@Griffin Malcolm BRRRR was an outstanding strategy when money was dirt cheap. When rates were 3%, it was possible to buy a house, rehab it, re-rent it, and refi the rehab debt into a new mortgage that had such a low rate it more than covered the entire cost of the rehab. I executed this strategy as often as possible back then--those were the days!

Today, pulling off a BRRRR is a lot trickier because you'll be refi'ing into a comparatively higher rate than before, and this often means the numbers don't pencil...not saying it's impossible, it's just a LOT harder to find anything that will pencil out.

However, the good news is that you've done your first house hack and it sounds like you've gained a lot of experience and resources from that. If the first house hack worked, why not repeat that over and over until it doesn't work anymore? House hacking has SO many advantages over other REI strategies (it's relatively straightforward, it tends to be much more forgiving to error and less risky than other strategies, it can produce excellent returns, it provides you with invaluable experience, it allows you to leverage owner occupant debt--which has the best terms, etc., etc.). Plus, a HH can be combined with other strategies (like value add approaches).

House hack a new place every year for 10 years until you hit the limit on owner occupant mortgages, and in a relatively short time frame, you can build up a very strong portfolio. There are plenty of multi, multi millionaires who built most or all of their fortunes via repetitive house hacking.

As you progress, you can work your way up to larger and nicer properties (house hacking doesn't require you to live with housemates--you can use owner occupant debt to househack a small multifamily property up to four units).

...and to clarify: I'm not talking about hypotheticals. I built a substantial portion of my own portfolio via repetitive house hacks. I've executed all sorts of REI strategies over the years, but some of my best returns have been via house hacks--it's a very powerful tool.

Good luck out there!