How to find investor-friendly mortgage broker? Need to be local?

Question

Hi BP crowd - I'm a new investor looking to do some BRRRR deals and I know I need to find the right types of lenders who are going to be able to work with me. One thing I'm worried about is that they send an appraiser in and they come in too low for me to cash out. I want to get a ballpark from the lender ahead of time if at all possible. Also, I'm finding some deals that don't really need much done as far as rehab, so you probably wouldn't consider that a BRRRR, however I can still operate it like a BRRRR potentially as long as I buy low enough to build in 70% LTV at the purchase. How would you go about finding a lender for this type of strategy? Also, do they need to be local? Thanks!

Andrew Postell · Answer

@Ryan Monty you are asking the right question here but you cannot lean on your lender to get the answer. Calculating the ARV is something you need to do on your own....I mean, I guess you could wait...but you are risking A LOT if you don't know how to calculate that ARV without anyone's help. Usually a lender needs you to be under contract. usually to be under contract, you need to deposit money. Usually depositing money means you might lose that money. So if we can calculate ARV on our own...then we lower our risk. So how do we calculate ARV on our own?....How many hours do you have? This is certainly something that needs to be continually sharpened through your investment career. And the same for calculating rehab too. So I would highly recommend to get plugged in to some local real estate groups. How to calculate these items in your market might be a little different than my market. So certainly lean on other real estate investors to provide some guidance. That's the best bet.BRRRR SKILLS NEEDED Generally speaking you will need several things to successfully complete a BRRRR here: ARV - being able to calculate the Value on your own (meaning, without the wholesaler telling you the value) is really important. Repairs - You will likely need to know how to budget the repairs as well. Getting a contractor can be extremely frustrating especially if you need to make an offer without even looking at the property. How do you calculate repairs without a contractor? You may need to lean on other local real estate investors in the beginning. Or maybe even just focus on properties with a very light rehab? Lenders - You will need a lender on your BUY step and on your REFINANCE step. And I would HIGHLY recommend to read this article I wrote for Bigger Pockets on how to find good lenders that you can find HERE. If they are good, they should be absolutely definitive on rate, terms, costs, etc. Trust me, many lenders will tell you they can do this...but it's very rare to find. When I first started BRRRR'ing my properties lenders would tell me "That's illegal"....it's not, they just didn't know anything about it. Finding Properties - and this is the absolute hardest step of anything right now. So network like crazy and find some good resources. It's going to be hard...but if it were easy then anyone could do it.

Andrew Postell · Answer

@Ryan Monty ok, so when you are buying off market you are usually buying a property in need of work. So that property will be appraised at the After Repair Value (ARV) with your Hard Money Lender (HML). So when you are doing your math you will need to measure value against sold comps. Your agent is right to an extent....there's nobody marketing your property and pushing value....so you just have to go off of the comp method of estimating value. In theory, if your agent took that property and put it for sale on the open market they will be able to get a higher sales price than what your home would appraise for using the BRRRR method. You don't have an excellent sales person pushing the sales price to the limit when you are working this strategy. Base your numbers on that "sold comp" figure and you should be ok.

Jonathan Taylor · Answer

@Ryan Monty The above comment from @Andrew Postell is spot on. You as the investor need to run numbers and be confident in your knowledge of the property/area. The lender/broker's job is to support this and help you with structure of the deal, help you with any loose ends and to ultimately accomplish your goals as an investor. Local lenders are a good tool to have but national ones have access to potentially better programs. Shop around, ask questions and if I can help, happy to do so.

Ryan Monty · Answer

@Andrew Postell- fantastic info - thanks so much! I've read your post as well and I really learned a lot - awesome stuff. Here's a question I still have after reading all this: in my specific scenario, I have an off-market property I'm currently talking to the seller about. No price has been discussed as of yet. Good comps have been hard to come by. I know that either way, I still need to obviously arrive at some ARV that I feel confident enough to work the negotiation against. Here's my dilemma: my agent friend told me that in his experience, a lot of times the appraiser that the bank sends will simply just go off of the negotiated contract price, and maybe add a SLIGHTLY higher amount if it's obviously a bit under market on that contract. Since we are talking off-market, I am obviously trying to negotiate as low a price as possible to get into the property, but the lender won't have a listed property that has been "price-tested" against the open market. I may be buying very low compared to the true ARV, and may be able to get much more after the minimal repairs I think I need, but if this is true about the bank's appraisal, they are just going to come in near the contract anyway. But I am not flipping, I want to buy-and-hold/cash out like a BRRRR (but with no 'bridge' financing needed except maybe seller carry until I can close my long term loan). So, how can I try to ensure that the bank won't use my "low" contract price to form the appraisal opinion vs. what we know would be the true (hopefully much higher) ARV?