Sep 3, 2019
Funding Your BRRRR Deals... BRRRR investing often requires Rehab Lending, be it from Private or Hard Money Lenders. In this episode of the [... and Landlord!] Podcast, I cover the typical requirements of working with Rehab Lenders, and the things you need to be on top of... These being: Down Payments; Appraisals; Reserves; & Credit Scores.
When working with Rehab Lenders, you'll almost always need to put some amount of money into the deal ("Skin in the Game"), as your Down Payment. This will typically be 20%, but it can be lower or higher by 5% to 10% - depending on the specific numbers and terms of the deal.
This will be largely determined by the Appraisal results. There will be an Appraisal of both the "As-Is" Value (to make sure you're not paying too much for the property); and the After Rehab / Repair Value (ARV) to determine what the home may be worth upon completion. And it is the ARV that will be critical in determining how much of the deal the Rehab Lender will fund versus what you'll need to pay out-of-pocket as your Down Payment. As they will typically only fund 70% to 75% of the ARV as the total project cost, which is both the purchase price and rehab budget.
And most Rehab Lenders are going to want you to be able to show a certain amount of Cash Reserves in the Bank, which includes your Down Payment amount, Closing Costs, Holding Costs, and Interest Only Loan Payments.
Lastly, they are most often going to pull your Credit and want to see certain minimum credit scores, along with no liens, no judgements, no collections, and no other derogatory information present on your Credit Report. In this regard, I discuss my personal situation of balancing the amount of Reserve Funds I use to pay off Credit Cards to keep my Credit Scores high, versus what I keep on-hand to be able to meet the Cash Reserve requirements.
Its all good information for those seeking to do BRRRR investing at a high level, which at some point will require Private or Hard Money funding from a Rehab Lender.