BRRRR a turn key property

[Connor Mather]

Hi everyone,I am interested to know if this strategy would work. 

I have a turnkey property owner who is willing to sell me their property worth 250k for 200k meaning I have 20% built in equity. Can I use hard money/private money to fund the deal and then immediately refi into a traditional loan at a normal interest rate? I understand that most traditional banks require a 75% LTV meaning I would have to come up with 5% to leave in the deal. I am ok with this. I just need to know if this is something people have done/is possible.

Thank you

[Whitney Hutten]

@Connor Mather Depending on your goals you are most likely already upside down on the deal.  1. Do you want cashflow, appreciation, or both?

2. Take the time to educate your self on the BP Calculators (or DealCheck.io is another fave of mine) and KNOW your numbers and returns PRIOR to offering and going under contract.  

Your numbers are only the start of the equation.  You need to know the following and plug them into a calculator:

1. Purchase Price

2. After repair value (right now this is the $250K-$260K). You can run this as a hold or as a BRRRR. Curious... if it already appraises for that amount with no repairs, why is the seller giving up $40+K off the top? Is there an issue with title or the area market?

3. Repairs budget - this can be full-on construction, or just the cost to touchup paint and change locks.

4. Expenses - Principle, Interest, Taxes, Insurance, HOA fees

5.  Reserves - Set aside enough to cover vacancy (8% is 1 month), capex, and maintenance. Always include this as the home will need repairs and updating at some point... This is where most new investors start fudging their numbers and get into real trouble.

6. Market rents - analyze the nearby competition and come up a range of rents (high and how) and see how you can be competitive in your market. 

Plug this into the BP Calculator and post your report here! Stress test your numbers for what might happen if interest rates rise, asset value drop, and rents drop before you can refinance. There is a lot of math to pay attention to, but especially pay attention to the DSCR number. If it drops below 1.25 you won't be buying for long until a bank will no longer lend to you for potential DTI issues.