Can you BRRRR a low cost house??

Question

My personal finances are solid—it will still take me a couple years to save enough to buy and rehab a place with 100% cash.

I’ve exhausted every person in my life to try and find money to use (I come from a very poor family and haven’t lived in this city for long).

I have enough in cash + 401k loan and a personal loan to buy and fix up low cost, smaller houses in “C” areas. The rent to total value for the properties in question come out to 2-2.5% but the appraisal value for these homes aren’t high enough to refinance out of.

Has anyone made a real estate investors living off of sub-50k houses? My hometown is full of these too. An example property is a recently renovated house with a long-term section 8 tenant in it. The asking price is $26k, the rent is $575.

I found a dilapidated house for $11k that will rent for $850. If I can keep the total cost under $50k the numbers would work, but I haven’t found any companies that will work with low priced properties; most require 100k or higher appraisal values.

Andrew Postell · Answer

@Jimmy Suszynski Yeah, I know what you mean. The first property I rehabbed I purchased for $7,000. I did it because if I made a mistake it would be a smaller mistake. So I understand where you are coming from. I did do the purchase and rehab with my own cash. And did not get a loan on it ever. On my NEXT property, I purchased for $20k...same type of thing...keep it small. But on that one I used private money. Some suggestions on how to find financing: Post in the Bigger Pockets STATE forum that you are looking in. There are usually some good, local investors that monitor those forums. Maybe they already have a suggestion or recommendation for you? Certainly try there. Visit your local REI groups. There are many groups that meet across the country. Some post here on the Bigger Pockets Marketplace. Many post on meetup.com. Networking is always a great practice and you never know who you might meet there and what good information they have to share. At this exact moment they likely won't be meeting in person but many are meeting virtually.Calling - and then there's this option. I would recommend starting at 200 different lenders. Keep in mind that there are 8,800 lenders in America. 200 would represent about 2%. And yes, I have called that many looking for loan products. Keep searching. Keep networking. Keep saving. Certainly hope you find a good solution here.

Jimmy Suszynski · Answer

@Whitney Hutten They are C/C- areas sandwiched between B and D neighborhoods--the way that Pittsburgh is setup (anyone from here please chime in) is that the areas being gentrified do so one street at a time. Streets on/near public transportation in the east end, for example, along Braddock Ave. Houses people bought 6-8 years ago for pennies have been rehabbed and have appreciated tremendously. Three-four streets away, those houses have already been turned. I'm looking in the 4+ streets away zone. They've been let go for decades and need full rehabs but have the potential to appreciate. (I'm hopeful) @Andrew Postell I copied and pasted your response and put it at the top of my google doc with lender notes in it.

Whitney Hutten · Answer

@Jimmy Suszynski What class of property is this? Just because it cashflows doesn't mean it's a good investment. Think to preserve your capital first, then cashflow. That said, where is this home, and will it appreciate (even modestly say 3%) over time? Is it in a C+/B area?

Grayson Spittel · Answer

@Jimmy SuszynskiAny chance you could pursue small multi family instead of SFH? If the property value is that low for SFH then residential multis still should be in your price range to pursue conventional loans or find one that you can BRRRR as the ARV/Appraised value should be higher. All the best.

Jimmy Suszynski · Answer

@Shawn Ackerman I started contacting lenders mid to late March. The smaller ones haven't been so interested especially given how new my current mortgage is and the investor-types don't lend that low.I have made a few major improvements (kitchen and bathroom, galvanized to pex plumbing and wiring) on the unit I'm occupying so maybe paying for an appraisal in the next couple of months will help the LTV?

Jimmy Suszynski · Answer

I've talked to 5 local credit unions, unfortunately, I didn't have a relationship with any of them prior to having the conversations. I've had calls with some of the "investor-friendly" lenders that use private money, but haven't found anyone that will go under $100k. I spoke with two loan officers at the big banks that I met while financing the FHA duplex I'm currently living in. I split my monthly living expenses with my long-term girlfriend and between her and my tenant, I don't have to pay anything towards my mortgage--I do put a lot into that account to build a large reserve since it's an old building. The reason for the lower cost is my ability to refinance. I'm not sure how long until my tenant's rents count favorably against my DTI ratio. I do need to talk to more lenders, the covid situation is probably affecting their comfort levels to lend as well. @Andrew Postell I haven't been able to find money to use. That doesn't mean I won't and don't plan to give up, I just don't want to spend the next year looking for enough to buy and rehab a 120k property when I have enough to do a 30-40k property; I would rather not put everything in and it get stuck. (Would take me a couple years to recoup). It's tough for everyone right now and I do think some people I know would be willing to invest but until the pandemic and uncertainty clear up.

Shawn Ackerman · Answer

@Jimmy Suszynski I think you have an excellent strategy in mind. I have done what you are referring to at-least 15 times and I have lenders that would do this. However I’d like to know how many you have called as when ai got started ai sat with my excel spreadsheet and called over many lenders until I received a yes from 1. Also the $26k houses in my market rent from $850 SFR and $1200 for duplexes.

Michael Noto · Answer

The only issue I see with BRRRRing a low cost house is a lender that will refi you on the backend. Do you your research on possible refi landing spots before you purchase.

CJ M. · Answer

@Dillon Jackson That one was $30K

Nick Rutkowski · Answer

@Jimmy SuszynskiYes, most of the time they’re all cash purchases because banks won’t finance 50k and under. The spread is too small for them to consider it. Now refinancing is different, costs less for the lender and the spread is there. I bought my first house for 32k and refi it for 55k.