Scaling Strategy using BRRRR/DSCR/HML - Please Advise

[Tony Pellettieri]

We are currently in the process of preparing to close on our 3rd Investment Property. Originally we planned to Fix/Flip/Sell houses in our farm area using all of our own cash. Doing so would trigger the need to pay Taxes on gains, additional closing/agent costs to sell our properties, and provide no residual income or capture of any benefits related to holding a property in a high growth area. We now have a new strategy which we are asking for input on before we move forward at a fast pace to scale quickly in 2024.

We plan to use a HML for the Acquisition, Pay cash for Points/closing/repairs(no HML draw costs/waiting periods). After repairs are complete, get a renter in ASAP using a property management company/Cash flow positive, obtain DSCR Loan for $100,000 - 105,000, repay original HML, Net additional cash of $23,800 on each property and repeat the process.

With the capital we currently have, I believe we can put 1 similar property under contract each week, close in 2 weeks, Refi 8 weeks after closing/rehab/renting and repeat the process. In year 1, I calculate being able to acquire at minimum 42 properties, after the initial 2 month period to close on first Refi, using only our original cash, if consistent. If investing all of our net additional cash, an additional +6-8 in Q2, +14-16 properties in Q3, and +20-25 in Q4. If sourcing private capital to use for cash at time of purchase, in addition to our own, I feel like this could magnify those number even further.

While scaling, I know we'll need to bring on additional parties to assist with property acquisition, Project Management, and property management.

What are your thoughts??

3rd Investment Property - ARV $130,000 - Purchase Price $60,251 - Repairs $17,500 - Rehab Time frame 4-5 Weeks

Acquisition 
20% of HML $12,050 + Points/Fees $1,500 + Repairs $17,500 + Closing Costs $950 + 3mo I Payments on HML $1,000

Refinance
$105,000 DSCR Loan - $48,200 Aqu HML Loan - $33,000 Initial Cash Invested = $23,800 Net Cash Out

[Joe Davis]

Hey Anthony, 

Good strategy, just want to from a lender's standpoint point out a few things.

1) Seasoning on ownership is going to get you better rates, ideally 90 days - but yes having a tenant in at market rent is going to be great. 

2) One of the hardest parts about scaling is finding enough adequate deals that can still get you the Net Cash out at the end. In my experience, it's tough unless you are throwing significant capital behind acquisitions. 

I absolutely LOVE the ambition to do 42 properties a year - and with your estimations on how the process works, I am sure you can. but THE most important aspects (besides the capital sources) is the wheelhouse/conveyor belt of solid leads to evaluate. 

Some other points to note which I am more than happy to help with - DSCR lenders do have SOME regulations that you will find it tough to navigate if you snap up the wrong property.

- Always check with the long term debt lender first if the property is deemed "rural". get them to check this for you first. 

- Many lenders have a minimum of $75k (we actually do down to $50k) but have seen numerous investors not know this, and struggle to get the cheaper houses refinanced. 

- Many lenders have a min Sqft. 

- Many lenders have a minimum value of the property (at appraisal) of $100,000 or greater (essentially, they don't want hood houses on their books if they have to take back"

Just a few things on your check sheet i would have when evaluating! Good luck man! I have seen/been a party too a number of investors scaling to these levels, it can be done but there are some similiarties i see....even on the rehab side, same product in everything - paint code, flooring, cheap granite (excess bought at discount and stored for tenant turnover)..... etc.