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First Rental - BRRR Method

2,952 Views | 17 Replies | Last: 4 yr ago by itsyourboypookie
CaptnCarl
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9:38a, 11/11/21
AG
I'm looking at purchasing my first rental property. Actually, it may be my second, as I may move into this property and lease the home I own now.

This property is a few houses down from my current home. I recently fully renovated my current home, so I am familiar with the work.

2BR/2BA asking $250k with no realtor. I would only pay around $220k.

Any advice?
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flyingaggie12
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4:48p, 11/11/21
AG
where the heck can you find a $220k home these days??...half kidding
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CaptnCarl
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In reply to flyingaggie12 • 5:10p, 11/11/21
AG
Not even going to take that bait from the other thread. It's in a great area though. Million dollar homes a few blocks over on my evening walks.

Almost commented on the other thread, but decided some people will never be convinced. Some can't lose the ego of the status of where their kids go to school and their zip code. Some people need to go on a mission trip to a third world country to recalibrate perspective.
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flyingaggie12
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5:16p, 11/11/21
AG
That's a good find, what thread are you referring to if you don't mind?

Also what kind of advice are you looking for? It seems you already have gone through a reno, which is the most challenging/potentially costly part.
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CaptnCarl
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5:28p, 11/11/21
AG
I cannot find the thread, but a poster commented "the days of $250k homes are over."

I think I'm looking for any tools or formulas to evaluate the return, what rates I should be looking for, etc. Should I set up an LLC to fund the project? What do lenders look at to evaluate a second mortgage.
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flyingaggie12
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10:54p, 11/11/21
AG
I think an LLC makes it more complicated when it comes to financing the property but I'll let one of the lenders comment on that.
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KayJayKay
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11:27p, 11/11/21
Completely depends on the rental rate. If it's a 1500/mo rental rate hood then 220k is not a deal. You need to be at 2k a month bare minimum and hopefully a lot more if your going to be into the property for 250k plus or it won't cash flow. The LLC is not your biggest concern just yet, get a few more and then worry about it. I borrow in my company all the time for properties and it's a non issue, actually it's way easier and faster than when using my personal name.
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CaptnCarl
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In reply to KayJayKay • 9:53a, 11/12/21
AG
Thanks. These numbers are what I am looking for help on. Do you only use 15yr mortgages on rentals?
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KayJayKay
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10:52p, 11/12/21
For years we were doing commercial loans on properties and most local banks would do 20 year am but have a 5 year look. I believe every one of them renewed us after the 5 yrs.. they were typically a half percent origination, slightly higher rate than whatever a mortgage was at and always borrowing in a business name. Now in the last year or two there are a bunch of national lenders that have completely changed the game. They will do full permanent 30 yr am loans just like a mortgage and in a business name and it's pretty close to no doc lending. I would classify it as asset based lending and most will go to 70 to 80 percent LTV and they are everywhere. The last 10 or so refinances I have done recently have been in the higher 3s to mid 4s just depending on the property and debt ser coverage ratio
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Dr T and the Women
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In reply to KayJayKay • 3:45p, 11/14/21
AG
KayJayKay said:
For years we were doing commercial loans on properties and most local banks would do 20 year am but have a 5 year look. I believe every one of them renewed us after the 5 yrs.. they were typically a half percent origination, slightly higher rate than whatever a mortgage was at and always borrowing in a business name. Now in the last year or two there are a bunch of national lenders that have completely changed the game. They will do full permanent 30 yr am loans just like a mortgage and in a business name and it's pretty close to no doc lending. I would classify it as asset based lending and most will go to 70 to 80 percent LTV and they are everywhere. The last 10 or so refinances I have done recently have been in the higher 3s to mid 4s just depending on the property and debt ser coverage ratio
who are some of these lenders?
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KayJayKay
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7:48p, 11/14/21
Lending home, dominion, loan guys, lend simpli, Stratton, lima, Vizio lending one. Probably missing a few but those are the one we have used that I can remember.
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grizzo
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11:35p, 11/23/21
AG
Devils Advocate here:

If the market value of the home is $250k and you are buying at $220k, the initial equity capture is attractive. However, you are doing a BRRRR, which assumes there will need to be rehab. What is the cost of that?

Further, your post doesn't go into rental rates. Very important because, while principle pay down is awesome, the asset should produce income. It needs to cash flow.

With the aforementioned questions, you have discussed financing. There's two levels of financing on the deals I do - the first level is the one that takes care of initial purchase price and rehab budget. You cash use cash, hard money or private investors to do this…I think private money is easiest to work with. The second level is once the home is rehabbed and leased. Your refinance it into a conventional loan.

To each their own on the conventional loan. However, I would always do a 30-year. If you've got a 30-year, then you can make it a 15-year, but you can't make a 15-year a 30-year. The covid situation and the eviction moratorium is a great example of this. What happens when your tenant doesn't pay and you can't kick them out?! You'll want the lower overall payment.

I'm not an expert. I hope some of this helps. I have done 4 BRRRRs, and I have 2 under contract. Happy to answer any questions to the best of my ability.
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mazag08
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In reply to grizzo • 8:13a, 11/24/21
AG
Great post.
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Jay@AgsReward.com
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In reply to Dr T and the Women • 9:49a, 11/24/21
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AG
We do these every day. They ae called debt service coverage ratio loans. The only income that is looked at is the rental income from the subject property. You can vest the property in a LLC if you would like and you do not have the 10 property max that comes along with conventional financing.
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grizzo
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In reply to Jay@AgsReward.com • 9:50a, 11/24/21
AG
Jay@AgsReward.com said:
We do these every day. They ae called debt service coverage ratio loans. The only income that is looked at is the rental income from the subject property. You can vest the property in a LLC if you would like and you do not have the 10 property max that comes along with conventional financing.

How do the fees and rates compare? Are you looking for something different than 75% LTV? Thanks!
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Jay@AgsReward.com
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In reply to grizzo • 9:54a, 11/24/21
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AG
Fees are more or less the same as a conventional loan, but typically will have an origination point. The rates start about a 1/2 point higher then a conventional for non owner full doc loan. This would be for a 30 year fixed. You can do interest only as well.
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CaptnCarl
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9:59a, 11/24/21
AG
Thanks! These are the type of responses I was hoping to hear.

Unfortunately, I did not follow up with the seller fast enough and the property sold. Never hit the MLS market and no realtor.
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grizzo
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In reply to CaptnCarl • 10:04a, 11/24/21
AG
CaptnCarl said:
Thanks! These are the type of responses I was hoping to hear.

Unfortunately, I did not follow up with the seller fast enough and the property sold. Never hit the MLS market and no realtor.

Good luck in the future. I'm happy to bend an ear whenever the next one comes. It is okay to lose deals. If you're not losing deals, you're not looking at enough of them. Stick to your numbers.

From Jay's response with the DSCR loan, the ability for the asset to pay for itself is of the utmost importance.

Despite what the people say on this board, there are deals. I'm under contract on two for less than $210k together. Keep turning over stones!
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itsyourboypookie
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In reply to Dr T and the Women • 6:12a, 11/29/21
Dr T and the Women said:
KayJayKay said:
For years we were doing commercial loans on properties and most local banks would do 20 year am but have a 5 year look. I believe every one of them renewed us after the 5 yrs.. they were typically a half percent origination, slightly higher rate than whatever a mortgage was at and always borrowing in a business name. Now in the last year or two there are a bunch of national lenders that have completely changed the game. They will do full permanent 30 yr am loans just like a mortgage and in a business name and it's pretty close to no doc lending. I would classify it as asset based lending and most will go to 70 to 80 percent LTV and they are everywhere. The last 10 or so refinances I have done recently have been in the higher 3s to mid 4s just depending on the property and debt ser coverage ratio
who are some of these lenders?


I'm a broker for one. We have been refinancing our own property off of local bank debt onto these. Follow this link https://shrtm.nu/r2rjetloan and fill out the info and we will get you approved.
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