All Forum Posts by: Account Closed

I've read a bunch of articles on BP but still can't get my head wrapped around the BRRRR strategies and specifically the financing parts of it... Could someone help me fill in the gaps?

Obviously BRRRR stands for:

B - Buy

R - Rehab

R - Rent

R - Refinance

R - Repeat

Buy

For Buy, you can use the traditional methods of finding a property like looking for REOs on the MLS, networking, etc. With BRRRR, you're looking for a house that you would look for where you are going to flip it.

So you might find a house for $50,000 that needs $30,000 of repairs, but after you have comped it out, you figure out that the After Repair Value is $175,000. Here's J Scott's article on finding ARV or MPP.

then you also have to take into account your fixed costs as well. There's a great article on Calculating Fixed Costs here by J Scott. For Conversation sake and to make the math easy, let's say the fixed costs are $20,000.

QUESTION: Would you get a short-term loan for your purchase price + repairs + fixed costs? In this case $100,000?

So, I'll assume the answer to that question is yes. So we've now purchased the house for $50,000 and have a loan through our PML or HML of $100,000 at let's say 8% and the lender wants to be paid back in 6 months.

QUESTION: Would you be able to do a "30 year" loan and pay it back after 6 months so your monthly payments aren't so high? for example, a $100,000 loan at 8% due in 6 months would be $17,057.71 a month. vs a $100,000 loan at 8% due in 30 yeras is 733.76 a month. Or do these lenders just want their 8% paid out at the end of the loan term? so it's not a monthly payment, but in 6 months, they just want a check for $108,000?

Rehab

So now you have your house, and you get to work on your rehab just like you normally would for a flip. For me, I need a project manager or a GC because I don't have that experience. I can say, I love J Scott's book on Estimating Rehabs and Flipping Houses.

With this, because you're not flipping it for top dollar, you're really just putting what will get you top rent. And sticking with the flipping mentality, the property still needs to stand out and look clean and nice, just doesn't need to have all the bells and whistles.

So the rehab is done and you're, for sake of conversation, spot on budget still. You estimated $30,000 and it took $30,000 on the nose. :-)

Rent

So instead of turning around and selling the property, you rent out the property. So this is the shift now between flipping and buy & hold properties. 

I personally will be using a Property Management Company so I don't have to be a landlord. 

I'll use my property management company to find myself a renter. And from everything I've read, you can't refinance before you get a renter.

QUESTION: Is this correct? you need a renter before you can refinance?

Refinance

This is where i probably have the most questions...

From my understanding, you need to find a bank that will do a cash-out refinance. From my understanding again, this is where you have the ability to cash-out on the equity you have in the house.

So, back to the numbers... You have a short-term loan for $108,000 after interest.

If the house appraises for $175,000, the bank will then give me a loan for $175,000. 

QUESTION: So if i have a loan for $175,000, what money am I putting towards the loan? the $108,000 that i've already spent on repairs and to pay for the house and such?

The difference between $108,000 and $175,000is only $67,000. QUESTION: so would my equity only be $67,000? Which wouldn't be enough money to pay back the loan?

QUESTION: What type of loan are you refinancing to? I've heard of a homeowners loan or even a commercial loan?

Repeat

Let's say my scenario leaves me with walking away with $67,000, you can take that cash out to purchase another house and do it again.

Anyway, I'm hoping this overview is correct and helpful to other people. I'm trying to find like a comprehensive guide on BRRRR, but can't find anything that really just walks you through every step of it. There are some great articles, but i'm hoping some of the gaps that i'm having are some the same gaps others are having and this post will be useful for others moving forward...

Where am I off base in this? What am I missing?

thank you,

Jason

I keep hearing about people saying they are opening unsecured lines of credit. I'm wondering if this is a good or bad thing to do? It seems like a good way to finance your earnest money or your down payments and then refinance? Do I just walk into my local bank and ask them what i'd qualify for as an unsecured line of credit? What are some best ways to go about doing this or should i use a different method to fund my down payments? 

thanks,

Jason

Unless you literally take away part of the house, it wouldn't be possible. There's no back access from the back of the property. No car port or anything like that. The thing I'm afraid of is purchasing it and then not being able to get a tenant in. This is a good cash flow as long as there's a tenant. Lol

Good Afternoon,

I have a single family home that is up for sale that i'm looking to potentially purchase. All the numbers work out well in my favor. The only down side is that there is literally only 1 parking space and no other off street or even on street parking. It's a 3/1 and i'd keep it as such. The numbers aren't high enough to flip, but work out well to fix up and rent and a cashflow of $302/mo+.

My only concern is the parking situation. Am i limiting the audience that would be willing to rent. with a 3/1 you almost expect 2 cars...

Any advice? Walk away or do the deal?

I walked through the house today, it will be a full gut.

the property is a short sale and has been on the market for just over 24 hours.

the property to the left was a flip that sold for $164k, and the one to the right is currently being flipped and they're listing at $210k.

It'll need completely cleaned out, but here are some definites that it'll need:

Roof fixed/replaced (2 leaks and some rust)

all drop ceiling removed

sub-flooring where the leaks have come through the house and warped the flooring

wood floor through out the entire house

HVAC

a new front door prehung

2 back doors

2nd story deck is sturdy, but needs a facelift

the previous owner took out a load bearing wall but didn't support it, so the second story floor is a little iffy.

Electrical re-wired

Pluming most likely needs to be re-done as well.

All windows need replaced (15)

Needs to have a brand new front porch.

then all the normal stuff.

bonus:

when we went to the property, there is a 2 car garage out back with an apartment on top that wasn't part of the MLS listing.

the apartment would need a full gut as well.

it's plaster, so it's not really tearing it down to the studs, but really tearing it to the plaster and starting with a blank canvas. The foundation itself that the house is sitting on, seems good, it's more everything on the inside of the house that needs tour down and rebuilt. 

I guess my next step is to take a walk through with a general contractor? I'm trying to use the book "The Book on Estimating Rehab Costs".

Part of me wonders if a full gut would be easier for a first flip, or more stressful. I guess it really just comes down to the numbers.

I just had a house come across my plate and I'm a first time investor. It is on the market for 59,500 and needs some work. I haven't seen it yet in person, but the house next door was recently renovated and sold for 169,900. Same sq footage, same year, same bed and bath. When I run the numbers, that gives me a 40k rehab budget and still neting 41k in profit... I feel like I'm missing something... any suggestions?