In an effort to add as much value as I possibly can to your life/business I’m going to be walking through each and every one of my holdings. I’ll go through why we picked it, the #’s, where we found it, and I’m happy to answer any questions that you could have!
What is a BRRRR deal?
This first deal we’re going to go over is a BRRRR deal. For those of you not familiar with a BRRRR deal I’ll walk you through the acronym. Buy, Rehab, Rent, Refinance, Repeat. With this strategy you can turn the same cash over and over again into more rentals using bank financing. I’ve got friends who’ve built up portfolios of 20+ doors turning the same $75,000 (and growing it!) over and over again. The goal is to buy a property at around 70-75% of after repair value (ARV) minus the cost of repairs. You’ll then rehab the property. Get it tenanted and approach a local community bank. (Ones that carry their paper in house are often the easiest to work with. They tend to go 80% of the appraised value and often have no seasoning requirements.) Based off of their seasoning requirements (some have none!) you should be able to refinance your cash back out within 6 months to 1 year. (Worst Case Scenario)
“Delayed Finance Hacking”
*PRO TIP: Some banks won’t allow you to get your cash out based off of the appraised value but will allow you to do what they call “delayed financing”. This is basically where they’ll issues a mortgage based off of your “all in” costs on the HUD-1. Their goal is to not give you back “extra” cash but allow you to kind of do what we discussed above. Check with your lender but one of ours does this. They allow us to use private funds and have them on the HUD. On this particular deal we used a local private lender. He was willing to fund 75% of the ARV which allowed us to not only cover ALL costs but actually pull out around $9,000 in cash. Our local bank is on board and okay with us getting our “cash out” from the private lender. They will now allows us to refi out based off of the dollar amount on HUD. Which gets our lender paid off and allows us to keep our extra $$$ we pulled out!
**Disclaimer: This strategy does require good credit, good deals, and the ability to stay on budget in your rehab. While some aren’t a fan of leverage this is a very safe way to do it. Most banks will only allow you to pull out 75-80% of the appraised value. So you’re building in a minimum of 20% equity per CASHFLOWING house. It really doesn’t get much safer than this!**
It was only built back in 2007. The seller found my “we buy houses” site. (We’ve got the #1 ranking site in our market…) The property was in solid shape minus a plumbing issue in the kids bathroom, holes punched in the walls, and bad carpet/paint. She was moving in with a boyfriend and didn’t want to be making the mortgage payment. We honestly pushed her towards a realtor and she insisted on getting an offer. We offered her 102.5k. She accepted and we closed within 3 weeks. The property was funded with a private lender 8% interest only on a 2 year term. The rehab ran us right at $9,200 as we decided to replace the AC unit as well as the initial scope. Private lender funded 120k. ARV of 160k+. The property is an A Class area and will appreciate further. It will rent for right around $1,300 a month as well. The rehab is completed and we’re currently marketing for a tenant. We’ve had a ton of interest in the property from tenants. Just screening for the right one!
How Can You Find These in Your Market?
While you may be able to find a BRRRR deal from a local wholesaler chances are you wil NOT find one that is a simple carpet and paint rehab. Why? Less sophisticated investors are happy to buy at the 1% rule or on even thinner margins. (Institutions as well.) Chances are you’re going to have to buy in worse shape, in more gentrifying areas, and do a lot more work. My only suggestion would be to go direct to seller if you’re really wanting these kinds of houses.
Comically this ended up being a nothing down deal. I’d read Rober G. Allen’s book years ago. Kind of funny that we pulled one off!