1st time BRRRR and understanding the financing part of BRRRR

[AraBella Hannum]

Hi,

I am planning to get my first BRRRR project in a month, but I am having a hard time understanding the finance part of BRRRR.

1. The property should appraisal for more than what you bought it for, then once that happens are you supposed to go to local bank to get it refinanced and you get money back from the bank if it appraises for more? Then with that money you get your pay back your private lenders/hard money?

2. Do your private lenders/hard money not have prepaying penalty if you refinance within the same year? 

3. How do you get private lenders/hard money to also pay for the renovations?

* This question is not about financing but when you looking at a house you are interested in doing a BRRRR do you take a GC out with you?

Sorry for all the questions but thank you!

[Andrew Zamboroski]

Quote from @AraBella Hannum:

Hi,

I am planning to get my first BRRRR project in a month, but I am having a hard time understanding the finance part of BRRRR.

1. The property should appraisal for more than what you bought it for, then once that happens are you supposed to go to local bank to get it refinanced and you get money back from the bank if it appraises for more? Then with that money you get your pay back your private lenders/hard money?

2. Do your private lenders/hard money not have prepaying penalty if you refinance within the same year? 

3. How do you get private lenders/hard money to also pay for the renovations?

* This question is not about financing but when you looking at a house you are interested in doing a BRRRR do you take a GC out with you?

Sorry for all the questions but thank you!

Good morning!

see my responses to your financing questions, I hope they help!

1. The property should appraisal for more than what you bought it for, then once that happens are you supposed to go to local bank to get it refinanced and you get money back from the bank if it appraises for more? Then with that money you get your pay back your private lenders/hard money?

The idea of the BRRRR strategy is to force appreciate the property so that when you refinance you can pull out your initial investment (or as much as you can) or additional cash, if the appraisal is high enough. In order to do this, you want to make sure your loan to ARV on your initial bridge loan, or loan to costs if using cash, are low enough for you to come out ahead on the refinance. If you can safely assume a 75% cashout refinance, you will want the 75% to cover your initial costs, holding costs, financing costs, etc. or as much as possible.

2. Do your private lenders/hard money not have prepaying penalty if you refinance within the same year?

In the initial bridge loan that you purchase with, generally there is no prepayment penalty. I say generally because not all lenders are the same and some do have a minimum interest requirement.

3. How do you get private lenders/hard money to also pay for the renovations?

This may be easier with hard money as it is more institutional. You will want to give a clear idea of your purchase price, the amount of repairs needed, and your projected after repair value (ARV) based on comparable sales you pull. You will also want to document any experience you have, if none, it's a good idea to gameplan up front how you plan to facilitate the process (how will the project be managed, contractors you plan to utilize, etc.).