4-Unit BRRR - Auburn - Financing/Deal Structure Advice

[Dylan Thinkers]

Hi All,

We are evaluating 4-unit building in Auburn, CA. The property is in pretty rough shape so we're planning on renovating before renting. My investing partner is a GC. This is our first investment together so we're exploring financing options.

Wondering if anyone has trusted contacts in private lending/hard money who are able to fund ~$400k in acquisition cost and ~$250-300k in repairs? We anticipate a post renovation value of ~$750-800k. Market 1bd rents are about $1500-$2000.

Ideally, we would have 24 months to get thru plans/engineering/permits/renovation. After that we plan to refinance into a conventional loan. 

Also, wondering if folks lend with the ability to only pay interest on the "drawn" funds during each payment to contractors? It would be a shame to pay interest on the entire amount, if only part of funds are deployed.

Thanks in advance for any tips on things we should look out for in loan terms, refinancing, etc!

Dylan

[Erik Estrada]

Quote from @Dylan Thinkers:

Hi All,

We are evaluating 4-unit building in Auburn, CA. The property is in pretty rough shape so we're planning on renovating before renting. My investing partner is a GC. This is our first investment together so we're exploring financing options.

Wondering if anyone has trusted contacts in private lending/hard money who are able to fund ~$400k in acquisition cost and ~$250-300k in repairs? We anticipate a post renovation value of ~$750-800k. Market 1bd rents are about $1500-$2000.

Ideally, we would have 24 months to get thru plans/engineering/permits/renovation. After that we plan to refinance into a conventional loan. 

Also, wondering if folks lend with the ability to only pay interest on the "drawn" funds during each payment to contractors? It would be a shame to pay interest on the entire amount, if only part of funds are deployed.

Thanks in advance for any tips on things we should look out for in loan terms, refinancing, etc!

Dylan

 Hi Dylan, 

Despite the tight profit, assuming the property can debt cover at a 1.10 ratio, you should be able to get a short term bridge loan up to 70% ARV, which would be a $560,000 total loan amount. You can still do 15-20% down on the initial purchase price, however given the tightness of the deal, you might not be able to finance all of your proposed renovations, unless you cut the budget.

You also will need to show similar rehab experience in the area in the last 36 months. If your GC is open to be a personal guarantee, this could possibly work.