Financing a BRRR deal

[Ryan Allison]

Looking for some insight from BRRRR investors... who have you been using for the initial loan (the initial purchase & rehab portion of the project) prior to refinancing? Unfortunately I can not do a 203K, it has to be non-occupied. I realize a lot of this is location depedent, but anybody have any good recommendations?

Hard money obviously is an option but I would like to avoid the high interest, albeit the positive being only having to make interest only payments.  I'm leaning towards conventional purchase & doing the construction out of pocket prior to refinancing down the road, but I'm trying to find the cheapest way to get this intial loan done.  Do people typically use the same bank for both loans?  

Thanks,   

[Andrew Postell]

@Ryan Allison I'm going to answer this in a little different of a fashion here. We use the BRRRR method to limit our out of pocket costs. And in order to have the BRRRR method work...we would need to target off market properties. Admittedly, every market is different but 99% of the time you MUST buy off market to make the BRRRR method work.

So if I need to buy off market, then I need to close QUICKLY...and that's the rub with financing. Most of us would need SOME TYPE of acquisition loan that can close quickly. Hard Money is the most commonly referred to type since it is the most easily available...but there are other financing methods but they are harder to find. So if you have a great deal, where all the numbers work....but the seller has to close in 8 days because they are facing foreclosure....then a traditional Fannie/Freddie loan cannot work here. You MUST choose a different loan type. And those "acquisition" loans usually are short term loans that balloon...which is why there is that 3rd "R" in the BRRRR method. You must REFINANCE to get out of that short term loan.

And I want to be 100% clear here, Fannie Mae has a renovation loan. It's 1/2 the rate as hard money and 1/2 the fees...but if it takes 45 days to close that loan it's just not feasible to use it on the BUY step of the BRRRR method.

Now if you don't need to limit your out of pocket costs...then there is no need to use the BRRRR method at all. Then you can just put your 20%-25% down on a house that is on the MLS and ride it out. But if I'm buying $200,000 houses and have to put 20% down, that's $80,000 to buy 2 houses....I can buy 8-10 houses using the BRRRR method with that same amount of cash.

I hope all of this makes sense but let me know if you have any other questions.  Thanks!