Tag Archive for: BRRRR

How to Refinance a BRRRR Into a DSCR Loan

100% leverage for BRRRRs will be back on the table soon. Here’s how to refinance a BRRRR into a DSCR loan.

“Can I use a DSCR loan for a BRRRR?”

Yes!

A DSCR loan is one of the many products you can use to refinance your BRRRR property. 

Using the BRRRR method, you could buy a house with a hard money loan, fix it up, then refinance with the DSCR.

Let’s go through an example of what it would look like to refinance a BRRRR into a DSCR loan.

What Is a BRRRR and a DSCR Loan?

To get started, let’s review what these two real estate investment terms are.

What Is a DSCR Loan?

A DSCR loan (which stands for debt coverage service ratio) is a long-term rental loan with minimal qualification requirements. Your ability to get a DSCR loan is based on the property’s debt ratio, not your income, history, or experience. As long as the rent from the property covers all its expenses (mortgage, taxes, insurance, and HOA fees), you can qualify for a DSCR loan.

DSCR loans rely on cash flow. There are some DSCR products out there designed for negative cash flow properties. But these loans have higher interest rates, lower loan-to-values, and more cash out-of-pocket.

What Is a BRRRR?

BRRRR stands for Buy, Rehab, Rent, Refinance, Repeat. It’s a time-tested real estate strategy for acquiring cash-flowing rental properties.

In BRRRR, there are two loans involved:

  • The buy loan. The loan you use to close the house, do the rehab, and handle carry costs until you get a tenant. Real estate investors often use hard money for this, since it’s a short-term loan.
  • The refinance loan. The loan that gets you out of the hard money and captures the equity you put in the house with your repairs.

A DSCR loan can be a perfect fit for many BRRRRs’ second, long-term, refinance loan.

Appraised Value vs Purchase Price for a BRRRR’s DSCR Refinance

DSCR loans come in many different products (interest-only, 30-year fixed, etc.). You can use any type of DSCR loan as a refinance for a BRRRR.

There is just one question you need to ask your lender: For the LTV on a DSCR refi, do you need to use the appraised value or the purchase price?

When you do a rate-and-term refinance with a conventional loan, the guidelines often allow you to use the appraised value. For DSCR loans, however, lenders write their own guidelines. The number used for the LTV varies from lender-to-lender, so it’s always important to ask.

A Fast Refi

You don’t want to be stuck in the hard money loan for very long at all. The ideal BRRRR reaches the refinance stage within 90 days. The interest rate on hard money adds up quickly. It’s important to figure out all the details of your refinance ahead of time so you can get through the process fast.

We’ve been doing BRRRR long before it was named that. Back in the day, we called it “Quick to Buy, Quick to Refi.” The old name emphasizes a part of the process that many current BRRRR investors miss.

To be quick to refi:

  • Make sure you’re pre-qualified for the refinance loan, before you even close on the property.
  • Understand when you can use the appraised value of the house. This will tell you how much money you’d have to bring into the refinance.
  • Plan out whether you can get this BRRRR done with 100% leverage

Refinance a BRRRR into a DSCR Loan with 100% Leverage

100% leverage means you don’t put any of your own money in – not for purchase, closing, rehab, or even carry costs. In 2010, we helped many clients do BRRRRs with zero money out-of-pocket. Those opportunities will be available again soon.

For a successful 100% leverage BRRRR, the property you buy has to be at least 25% undermarket. In a down market (like the one quickly approaching us now), you can find many properties for 25-40% below market value.

Example of a 100% Leverage BRRRR

What numbers do you need in order to figure out a zero down option for BRRRR? Let’s go over a couple examples.

The 75% Rule

As we’ve covered, the short-term hard money loan comes first, and the long-term refinance loan comes second. But you have to know what LTV you’re qualified for before you close on the loan.

For most cases with a rate-and-term refinance, you can qualify for an LTV of 75% of the current appraised value.

To get 100% leverage for your BRRRR, all of your costs have to stay under 75% of the after-repair value.. For example, if you had a property with a projected ARV of $400,000, a 75% LTV would leave you with a $300,000 loan (aka, 75% of $400k).

Now, the difference between the ARV and the LTV is the amount you get to budget for all your costs (purchase, closing, carry, and construction). In this case, that would be $100,000. Any costs above $100,000 end up coming out of your pocket.

Budget for Costs

Let’s continue with our previous example.

Let’s say the purchase price for this home was $250,000.

We’ve looked over the property, and we could do the full rehab for $35,000. Also, closing and carry costs will be at $15,000.

So, what does all this mean? If you can get a hard money loan for $300,000, then your whole project is covered. You can refinance the whole amount into a long-term DSCR loan and pay off the hard money, with nothing out-of-pocket for you.

Going Over-Budget

No money down is the ideal for BRRRR. There will be more opportunities upcoming for zero down properties.

But for the sake of example, let’s say your costs on a property can’t stay under 75% of the ARV. If the purchase and carry costs are the same, but the rehab will actually cost $65,000, that brings our all-in costs up to $330,000.

Yet even the best hard money lenders probably won’t be able to give you more than $300,000 for this property. That extra $30k comes out of your pocket.

This is why you need to know your BRRRR numbers ahead of time before buying a property. Too many people jump into a hard money loan, but can’t qualify for the amount they’ll need.

Help with Refinancing a BRRRR Into a DSCR Loan

Are you in a position to qualify for a 75% loan? Do you know what numbers your deal needs in order to get a good refinance? Have you found a property that could be a 100% leverage BRRRR?

If you need help answering these questions, send us an email at Info@HardMoneyMike.com. Let’s run the numbers on a hard money loan. We’d love to see you refinance your BRRRR into a DSCR loan.

Happy Investing.

Text: "BRRRR Lenders"

How to Set Up Your BRRRR Lenders

People who win at BRRRR understand the two most important aspects of the process: getting properties undermarket, and organizing their lenders early on.

Lenders are an important member of your investment team. Here’s how to get them ready for your BRRRR investments.

BRRRR Lender Options

You’ll have a hard money or private money lender up-front. Then, in the second half of the project, you’ll have a more conventional lender with a traditional loan.

This traditional loan is usually 30-year with fixed rates, but comes with some constraints. You’re limited to ten properties with this kind of loan (including your own home). There’s also usually a limit on loan-to-value ratio, and conventional loans won’t let you put a loan in an LLC’s name.

Another option for this second loan is DSCR no-income loans. DSCR loans come in a variety of options: five- or seven-year ARMs, standard 30-year fixed mortgages, and more. Successful BRRRR investors know all their options for refinancing.

Set Your Lenders Up Ahead of Time

People who win at BRRRR set up all their lenders before they jump into a deal.

The amount loaned for the purchase and for rehab can very a lot from lender to lender. Good investors will always know how much their hard money lenders will give them.

Hard Money Mike, for example, does a lot of 100% loans if the cost is 75% less than ARV because we know the investor can easily refinance out. We know we can set them up with a rate-and-term refinance, and they’ll have no money out-of-pocket.

BRRRR winners don’t get into a property, get it fixed up, and then figure out the long-term loan. Winners figure out first whether they can get the cash out they need, and how.

Smart BRRRR investors have a pool of lenders they work with. They know what each lender can offer, and which will best fit their current strategy, ability, and deal.

Read the full article here.

Watch the video here:

Text: "BRRRR Example Know Your Numbers"

Know Your BRRRR Numbers – An Example Deal

We always talk about “knowing your numbers.” But when it comes to BRRRR, what exactly do we mean? Here’s an example of an ideal BRRRR property using the 75% rule.

The 75% Rule

The BRRRR method is all about numbers. Beginners sometimes fail because they make a deal emotional and bid the property up. When buying properties, you have to stick to the math.

Your North Star for BRRRR investments is the 75% rule – the best properties only cost 75% of the after repair value.

The reason for the 75% rule is because that’s the number banks will rate-and-term refinance a conventional loan for. When you can do this type of refinance, you can finish up the deal without putting any of your own money in.

It’s smart to shop around for banks for your refinance loan, though. Some banks may allow you to buy up to 85% of the ARV, under certain conditions.

Example Breakdown of a BRRRR Deal

After repair value (ARV) is the number the house should sell for once it’s all fixed up and on the market. This number is often dictated by what similar properties in the area are going for.

To get the best long-term rates, you refinance with your second, permanent loan. In order for it to cover everything (i.e., you don’t have to put any money down), all your costs must be 75% or less of the ARV.

Purchase Price + Rehab + Carry Costs + Loan Closing Costs = 75% of ARV

Let’s say, for example, other properties in the area are selling for $200,000, so that’s your ARV. You want to spend 75% less than that, so we’ll do:

$200,000 X .75 = $150,000

When the ARV is $200,000, all costs of the job should be $150,000 or less. This includes the closing price, carry costs, rehab costs, and any loan costs.

Read the full article here.

Watch the video here:

Text: "BRRRR Method for Beginners"

The BRRRR Method for Beginners: Setting Up for Success

There are two ways beginners can set themselves up for success using the BRRRR method: focusing on the numbers and putting together a team.

BRRRR Numbers for Beginners

The BRRRR method is all about numbers. Beginners sometimes fail because they make a deal emotional and bid the property up. When buying properties, you have to stick to the math.

Your North Star for BRRRR investments is the 75% rule – the best properties only cost 75% of the after repair value.

The reason for the 75% rule is because that’s the number banks will rate-and-term refinance a conventional loan for. When you can do this type of refinance, you can finish up the deal without putting any of your own money in.

It’s smart to shop around for banks for your refinance loan, though. Some banks may allow you to buy up to 85% of the ARV, under certain conditions.

Setting up a Team for the BRRRR Method

So you need good, low-priced properties. And the best way to find them is to build a good team. Especially as a beginner, you’ll need to know several of these kinds of people:

Realtors and Wholesalers

Knowing wholesalers and realtors can help you locate better properties and close with better deals.

Lenders

You’ll need private lenders for bridge loans and another lender for the long-term refinanced loan. Having relationships with lenders ahead of time speeds up a closing and can earn you a lower price.

Contractors

Ideally, from closing to refinance, BRRRRs are completed in 90 days. This means you’ll need contractors at-the-ready who can work efficiently and reliably to fix up your properties.

Property Managers

If you want your BRRRRs to be passive after the refinance, find a good property manager. A common beginner’s mistake is to take the first tenant who shows an interest – without any background checks or other renting requirements.

A good property manager can both find you better tenants and manage them for you. Many investors overlook this member of their team, but it can truly make or break your BRRRR experience.

Knowing several people from each of these categories gives you options to customize for each of your deals. Putting together a good and broad team will make the BRRRR method much easier and smoother — especially for a beginner.

Read the full article here.

Watch the video here:

Text: "BRRRR Meaning"

What Is the Meaning of BRRRR?

BRRRR winners understand the meaning of BRRRR and, just as importantly, what it doesn’t mean.

We aren’t just talking about the literal meaning: Buy, Rehab, Rent, Refinance, Repeat. We’re talking about understanding the strategy behind the BRRRR method. Successful investors understand the money side of these investments.

Types of Properties that Win at BRRRR

Foundationally, BRRRR means buying undervalued properties.

These properties have a lot of rehab needed, causing them to be valued much lower than other homes in the area. These houses are problems for someone else but opportunities for you. You can fix them up and get them in your rental pool.

We often see people who want to use the BRRRR strategy, but they buy their properties at 90% or 95% of the ARV. They buy close to retail price, and once they put the time, money, and effort into fixing up the property… They can’t even really use BRRRR.

BRRRR’s Two-Loan Strategy

BRRRR means using a two-loan strategy. At the beginning of the project, closing with a hard money bridge loan. At the end of the project, refinancing a traditional loan.

Using this strategy on an undermarket purchase captures the equity of the home to use to your advantage. If you buy a property too close to its ARV, the whole system falls apart and you lose your refinancing power.

To be successful with this two-loan plan, you have to search for undermarket properties you can get for 75% or less of the ARV. With this 75% rule, you can complete a BRRRR project with little or no money out-of-pocket.

Buying undermarket and using two strategic loans is the meaning behind BRRRR that winners fully grasp. But there’s much more to it.

What should you really look for when you buy for BRRRR?

Read the full article on BRRRR meaning here.

Watch the video here:

Text: "How to Win at BRRRR"

5 Ways Beginners Win at BRRRR

Some people just win at the BRRRR method. How can beginners do it?

Cash-flowing rental properties… With little-to-no money down… That passively run themselves after fix-up… This is the stuff beginner real estate investors dream about. And it’s possible with BRRRR.

But there are a lot of ways to do BRRRR wrong that’ll wreck this beautiful dream.

How do successful investors make it work? Here are 5 ways beginners can win at BRRRR:

1. Understand the Meaning of BRRRR

BRRRR winners understand what BRRRR is – and just as importantly – what it’s not.

We aren’t just talking about the literal meaning: Buy, Rehab, Rent, Refinance, Repeat. We’re talking about understanding the strategy behind the BRRRR method. Successful investors understand the money side of these investments.

Types of Properties that Win at BRRRR

Foundationally, BRRRR means buying undervalued properties.

These properties have a lot of rehab needed, causing them to be valued much lower than other homes in the area. These houses are problems for someone else but opportunities for you. You can fix them up and get them in your rental pool.

We often see people who want to use the BRRRR strategy, but they buy their properties at 90% or 95% of the ARV. They buy close to retail price, and once they put the time, money, and effort into fixing up the property… They can’t even really use BRRRR.

BRRRR’s Two-Loan Strategy

BRRRR means using a two-loan strategy. At the beginning of the project, closing with a hard money bridge loan. At the end of the project, refinancing a traditional loan.

Using this strategy on an undermarket purchase captures the equity of the home to use to your advantage. If you buy a property too close to its ARV, the whole system falls apart and you lose your refinancing power.

 

To be successful with this two-loan plan, you have to search for undermarket properties you can get for 75% or less of the ARV. With this 75% rule, you can complete a BRRRR project with little or no money out-of-pocket.

Buying undermarket and using two strategic loans is the meaning behind BRRRR that winners fully grasp. But there’s much more to it. 

What should you really look for when you buy for BRRRR?

2. Set Yourself Up for the BRRRR Method

There are two ways beginners can set themselves up for success using the BRRRR method: focusing on the numbers and putting together a team.

Numbers for Beginners

The BRRRR method is all about numbers. Beginners sometimes fail because they make a deal emotional and bid the property up. When buying properties, you have to stick to the math.

Your North Star for BRRRR investments is the 75% rule – the best properties only cost 75% of the after repair value.

The reason for the 75% rule is because that’s the number banks will rate-and-term refinance a conventional loan for. When you can do this type of refinance, you can finish up the deal without putting any of your own money in.

It’s smart to shop around for banks for your refinance loan, though. Some banks may allow you to buy up to 85% of the ARV, under certain conditions.

Get a Team Together

So you need good, low-priced properties. And the best way to find them is to build a good team. Especially as a beginner, you’ll need to know several of these kinds of people:

Realtors and Wholesalers

Knowing wholesalers and realtors can help you locate better properties and close with better deals.

Lenders

You’ll need private lenders for bridge loans and another lender for the long-term refinanced loan. Having relationships with lenders ahead of time speeds up a closing and can earn you a lower price.

Contractors

Ideally, from closing to refinance, BRRRRs are completed in 90 days. This means you’ll need contractors at-the-ready who can work efficiently and reliably to fix up your properties.

Property Managers

If you want your BRRRRs to be passive after the refinance, find a good property manager. A common beginner’s mistake is to take the first tenant who shows an interest – without any background checks or other renting requirements. 

A good property manager can both find you better tenants and manage them for you. Many investors overlook this member of their team, but it can truly make or break your BRRRR experience.

Knowing several people from each of these categories gives you options to customize for each of your deals. Putting together a good and broad team will make the BRRRR method much easier and smoother — especially for a beginner.

3. Know What Makes a Good BRRRR Property

A good BRRRR property follows the 75% rule. But that’s not the only criteria you should follow. What else makes a good BRRRR property?

What to Look for in a BRRRR Property

Here are the factors successful BRRRR investors consider in their properties.

Single-family properties

For multi-family or commercial tenants, lenders have different requirements. They often need you to hold your loan for 12 months after purchase (or even 12 after tenants move in). That timeline doesn’t work well with the BRRRR method. You’ll have a much easier time with single-family homes.

Rent prices

“Knowing your numbers” also means knowing the rent prices in the area of a property. Cash won’t flow on your investment if you’re unable to charge enough rent.

Desirable Areas

Find properties people want to live in. If you wouldn’t want to spend time there, good renters probably won’t either.

Vacation Rentals

If you’re doing vacation rentals, do the research on:

  • What areas people want to visit
  • What the rates are in the area
  • What third-party booking sites would be most profitable
  • What fix up levels you’ll need
  • Whether there are good hosts or property managers in the area.

Don’t Rush into Bad BRRRR Properties

Beginners fail at BRRRR when they don’t choose properties wisely. Don’t just buy property to buy property. You can own ten bad rentals and make no money. BRRRR should be a system that builds cash flow.

We see people do one or two BRRRRs then stop because it’s not what they expected. They put too much money in, or the area isn’t good, or their renters aren’t paying, or the rent isn’t enough to generate cash flow. 

Those issues aren’t BRRRR’s fault. A prepared investor, beginner or experienced, can always succeed with BRRRR properties.

4. Know the Numbers of a BRRRR Deal – An Example

We always talk about “knowing your numbers.” But what exactly do we mean? Here’s an example of an ideal BRRRR property using the 75% rule.

Example Breakdown of a BRRRR Deal

After repair value (ARV) is the number the house should sell for once it’s all fixed up and on the market. This number is often dictated by what similar properties in the area are going for.

To get the best long-term rates, you refinance your second, permanent loan. In order for it to cover everything (i.e., you don’t have to put any money down), all your costs must be 75% or less of the ARV.

PURCHASE PRICE + REHAB + CARRY COSTS + LOAN CLOSING COSTS = 75% of ARV

Let’s say, for example, other properties in the area are selling for $200,000, so that’s your ARV. You want to spend 75% less than that, so we’ll do:

$200,000 X .75 = $150,000

When the ARV is $200,000, all costs of the job should only be $150,000 or less. This includes the closing price, carry costs, rehab costs, and any loan costs.

5. Know Good Lenders for BRRRR

People who win at BRRRR understand the two most important aspects of the process: getting properties undermarket, and organizing their lenders early on.

Lenders are an important member of your investment team. Here’s how to get them ready for your BRRRR investments.

BRRRR Lender Options

You’ll have a hard money or private money lender up-front. Then, in the second half of the project, you’ll have a more conventional lender with a traditional loan.

This traditional loan is usually 30-year with fixed rates, but comes with some constraints. You’re limited to ten properties with this kind of loan (including your own home). There’s also usually a limit on loan-to-value ratio, and conventional loans won’t let you put a loan in an LLC’s name.

Another option for this second loan is DSCR no-income loans. DSCR loans come in a variety of options: five- or seven-year ARMs, standard 30-year fixed mortgages, and more. Successful BRRRR investors know all their options for refinancing.

Set Your Lenders Up Ahead of Time

People who win at BRRRR set up all their lenders before they jump into a deal.

The amount loaned for the purchase and for rehab can very a lot from lender to lender. Good investors will always know how much their hard money lenders will give them. 

Hard Money Mike, for example, does a lot of 100% loans if the cost is 75% less than ARV because we know the investor can easily refinance out. We know we can set them up with a rate-and-term refinance, and they’ll have no money out-of-pocket.

BRRRR winners don’t get into a property, get it fixed up, and then figure out the long-term loan. Winners figure out first whether they can get the cash out they need, and how.

Smart BRRRR investors have a pool of lenders they work with. They know what each lender can offer, and which will best fit their current strategy, ability, and deal.

You Can Win at BRRRR

Winners start as beginners.

This is a business. This is a way for you to make a living in real estate. Those who take the time to learn and get their team set up – those are the winners.

For help in setting up your team, going over your numbers, and getting your financing in order, reach out to us at HardMoneyMike.com.

You can also watch our videos on BRRRR strategies here.

Happy Investing.

Text: "Best Real Estate Investments in 2022"

4 Real Estate Basics to Make Money in 2022

The best real estate investments are the evergreen basics. Here are 4 consistent ways of creating cashflow — if you do it right based on your market.

1) Flips

Buying, fixing, and then selling properties is a common investment strategy. But to make fix-and-flips your best real estate investment in 2022, you’ll have to focus carefully on the numbers. Flips make money in one lump sum, not in a steady cash flow over time. So in tougher markets, it’s important to make that large sum count.

This year especially, we recommend staying in the medium to lower price range for your flips. We’re still seeing people selling well in the medium price range. Larger properties, however, are feeling a lot of pressure in this market.

For flips, focus on the numbers and stick to medium price ranges.

2) BRRRR Investments

Buying and fixing up rental properties is another of the best real estate investments. But BRRRR is taking a bit of a hit right now due to interest rates. Interest rates have more than doubled since the beginning of 2022, which will seriously impact your cash flow.

You can still make money from BRRRR properties this year, but you’ll have to be extra careful with numbers. Know your credit score, know your interest rates, and know the rent prices for your area.

3) Subject Tos

A “subject to” is when you buy someone’s property, take over their mortgage, and make all payments, but you don’t assume the loan. The property is in your name and you have ownership, but it stays financed by the seller.

Subject tos will be great opportunities in 2022. You can walk into a property where the rate on the mortgage is still 2.5% – 3%, potentially with renters in place. This will bring a much higher cash flow than if you started from scratch on the open market, where interest rates are almost double that.

Using subject tos is a great way to grow a big portfolio using someone else’s financing.

4) Notes

Another great tactic for real estate investors this year is to use your money in deeds of trust or other private lending.

Rates have gone up, but banks still haven’t really raised CD rates. If you have some money sitting in an account, notes are a good way to get a higher return. You can lend to other investors through gap funding or a more long-term agreement. Notes are becoming big in real estate again, especially with the market in 2022.

For More on the Best Real Estate Investments in 2022

Read the full article here.

Watch the full video here:

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No Money Down Investing? No Problem.

How do you buy investment properties with no money out of your pocket? Intro to Subject Tos.

Maybe you’re looking at interest rates and thinking, “I’m not sure I can put my money into real estate right now.” Maybe you’re new to investing, and you don’t yet have the money to put in. Or maybe you’ve got the money – but you’d much rather have it free than tied to properties.

In any case, every market has options for real estate investing with zero money down. For this upcoming market, our top 3 investment suggestions are: subject tos, BRRRR properties, and owner carries.

Here’s what you’ll need to know.

3 Ways to Invest in Real Estate with No Money Down

These are the most tried-and-true ways to invest in real estate with no money. Some of these methods will sound familiar – but they’ll have a twist to ensure your success in the market we’re about to enter. 

Other methods might be unfamiliar to you. They’ve fallen out of popularity the last 15 years, but rising interest rates will bring back their usefulness.

1) BRRRR with No Money Out-of-Pocket

Buy, rehab, rent, refinance, repeat. That process becomes easier the better your deals are. And as we see more foreclosures happen in the near future, and more people are sitting on the market, you’ll have the chance for better deals.

To get BRRRR properties with no money out-of-pocket in this market, though, you’ll need a good deal. What makes a deal good? One of the best guidelines is the 75% Rule. As long as the property costs 75% or less of the ARV, you can get into that property with zero money down. 

(Even following the 75% rule, you’ll need to qualify for a bank loan, so you’ll have to be sure your credit’s good.)

We’ve had a lot of success helping people with BRRRRs in down markets. Around 2010, we would often do ten properties every year for couples. They built portfolios with no money from their pockets.

2) Subject Tos with Zero Down

As properties get stuck in the market longer and interest rates rise, subject tos will become a great way to invest using no money.

A subject to is when you go on title, own the property, and take over mortgage payments – but leave the existing mortgage on the property, in the seller’s name.

What good does this do for you as the buyer?

  • Loans on subject to properties were originated two or three years ago, with 2.5-3% interest rates. Much lower than if you were refinancing for yourself in the current market.
  • You don’t have to refinance. It’s not on your credit, not based on your income, and you don’t have to go through underwriting.
  • The loan is probably already a few years into amortization. So every payment becomes lower – all without you needing to qualify for anything.
  • You can accumulate a large portfolio without the hassles of finding the money.

More on subject tos later in this article.

3) Owner Carry with No Money Down

An owner carry deal is somewhat similar to a subject to, where the buyer gets ownership of the house without taking out their own mortgage. But in an owner carry, the buyer doesn’t pay the property’s existing mortgage. Instead, the owner owns the home outright, so the buyer gives them mortgage payments directly.

Owner carries can be especially beneficial when you’re the seller. But an owner carry is also a potentially good option to invest without putting much, or any, money down.

Here’s an example of a recent owner carry deal we helped with:

A client was selling their parents’ property. They were planning to put the money in the bank and live off the interest.

Instead of settling for the 1% or 2% interest they’d make in the bank, we helped them with an owner carry. So they:

  • Sold the property.
  • Put a lien on the property so they held the mortgage.
  • Received mortgage payments from the buyer at closer to a 4% or 5% interest rate.

You’ll probably have more luck finding subject tos than owner carries. Not many people own a house free and clear, or take over a property without a mortgage.

What are Subject To Real Estate Investment Strategies?

With a subject to, you buy a property subject to the seller leaving their mortgage on the property. 

We talked about the benefits of subject tos – but how do you make it work? What are the right investment strategies to successfully get a subject to?

Subject To Strategy #1: Going Through a Proper Closing

First of all, still go through a proper closing on subject tos. You want to make sure the owner doesn’t have any other liens you don’t know about. When you take ownership, you become responsible for any existing liens on the property.

At the very least, get a title report to verify there are no liens. If you want, you can get title insurance – an extra cost but potentially worth it.

Subject To Strategy #2: Adding Your Name and Avoiding Problems with the Mortgage Company

With subject tos, some people may say you’re not allowed to take ownership and make someone else’s payments. They fear the lender may call the mortgage. 

But we’ve never seen a lender ever call a mortgage in this situation.

The main reason is because the lender usually doesn’t break even with the loan until year three or four.  When a lender originates the mortgage, they buy it, so it takes at least three years of payments to get their money back.

So as long as you pay on time and don’t cause friction, the mortgage company should have no problem with you taking over. They make money every time you make a payment, so they have no reason to call it off.

Subject To Strategy #3: Negotiating with the Seller

Sometimes you’ll have to negotiate with the seller for them to go through with a subject to. 

Maybe they’ll need a payment of $5,000 – $15,000 to be able to leave. Maybe they’ll include terms that they’ll only keep the mortgage on for five more years.

It’s helpful to know when a seller is in a position that they’ll want a subject to. A subject to takes place because the seller, for whatever reason, needs to sell the house but can’t. They don’t want to be stuck with the property, and they don’t want a foreclosure or missing payments to ruin their credit.

If you make their payments for around 12 months, they can usually qualify for another mortgage on another property without this one hurting them.

For more details on real estate investment strategies and setting up subject to deals, reach out to us at HardMoneyMike.com. We have plenty of experience, and we want to help you build a real estate portfolio without worrying about your credit or income.

How Do You Make Sure a Subject To Is a Good Real Estate Investment?

Not all subject tos and owner carries are created equal. Here are some tips on knowing when a property will be a good investment for you.

Good Location

In the upcoming market, don’t settle for properties in bad locations. A good real estate investment is a deal in a good area.

As more foreclosures happen, more REITs and investment companies will buy large amounts of rental properties, creating new “rental areas.” Your target tenants might want to avoid those areas. You might have more success buying in “better” areas.

Know Your Goals

When you go into a subject to deal, you’ll need to know the terms that will make the investment worth it to you, along with the goals you’d have for the property.

How long do you want to carry this property? Are those terms your seller can agree to? What does your seller require?

What’s your plan? What are your options for this property? Will you want to rent out the property, or look at lease to own or contract for deed options? 

Lease to purchase and contract for deed deals are worth considering. Those buyers will give you a down payment, which is a lump sum you can use to fund the property’s fix-ups, put in a reserve, or just keep in your pocket.

Subject Tos are a Good Real Estate Investment, Even with High Loan-to-Value Ratios

Subject tos will have a high loan-to-value ratio. It’s often around 90%, but we’ve seen subject to properties with over 100% loan-to-value.

Naturally, this could give you pause, but high loan-to-value properties are okay for subject to deals. They’re still good real estate investments. As a subject to buyer, you know:

  • There’s no money out of your pocket.
  • Rent will cover your payments.
  • The loan will amortize down.
  • Over time, you can own the property free and clear, and when the market’s up, you could sell for straight profit.
  • You can create wealth without even using your own credit.

Subject tos are a good real estate investment if you have no experience or money – or if you do!

How Do You Create Wealth with Subject Tos in this Market?

Once you know how to set up a subject to deal correctly, with terms that benefit you and ensure your safety as an investor… How do you make it a system that not only generates cash flow, but creates generational wealth in real estate investing?

Going Big with Zero Down Subject Tos

Volume is how you make your money. Subject tos can be easy and relatively passive, so it’s possible to stretch yourself from five to ten properties to 50 to 100.

But to go for volume, you’ll have to be less picky with the amount of money you put in a deal. 

You might have to bring in some money to help the seller move. You may have to fix up a few things in the property. Or you could need to carry the payments for a few months while you find a good renter.

Using OPM in Subject Tos

The number one investment strategy we recommend here is to bring in an OPM partner. This will be a person who’s willing to put in $10,000 to $50,000 in exchange for a portion of rent.

This partnership will allow you to expand quickly. Your partner gets a 5-6% return on their money, there’s still no money down for you, and you get the speed and flexibility that cash gives a subject to.

We have a history of helping people with this part of the process. You can get the start-up cash that’s holding you back from creating wealth by investing in real estate. Reach out at HardMoneyMike.com.

What’s an Example of a Subject To?

Lastly, here’s a subject to example deal – what the process should look like from beginning to end.

Why the Seller Wants a Subject To

A subject to starts with a seller who has a problem. Either they can’t make payments on their property, or they need to move ASAP (got a new job across the country, etc). They can’t sell the property as fast as they need to; or maybe they could sell, but paying 6% realtor fees and 2% closing would leave them upside down.

The seller would rather have someone else take over the property and make the loan’s payments. This saves the seller’s credit and helps them avoid foreclosure.

A subject to helps a seller get out of a messy situation.

Closing the Sale

Once you find a seller, you’ll need to set up your terms. You’ll go through a typical closing, so you can get a title report and check for any existing liens.

You’re responsible for any liens on the property. They may have a first, second, or judgment lien that would become your responsibility. You don’t want to get stuck with a property whose value is way undermarket.

Payment Example for Subject Tos

After closing, you’ll need to set up the payment system to the seller’s mortgage company. Many people use a third-party escrow company. They make the payments to the escrow company, and that company makes the actual payments to the mortgage lender. 

A seller’s credit is on the line when they agree to a subject to deal. If you offer to use a third-party company to make the payments, that could give the seller the reassurance they need to go through with a deal.

The escrow company may cost five to twenty-five dollars per month, but it’s a small price to get in on an existing loan with 2.5% – 3% interest. 

Where Next?

Once you’ve acquired a subject to property, all you need is to find either:

  • A renter.
  • A property management company to help rent.
  • A rent to own or lease purchase buyer.

And then? …Make money, and repeat the process.

Subject tos are clean, easy, and repeatable.

If you want to find out if creating a large real estate portfolio using subject tos is the right path for you, reach out to us at HardMoneyMike.com.

For information on lending options for potential properties, download the free resource here.

To learn more about real estate investment with zero money down, watch the videos here.

Happy Investing.

The 8-Step Guide to BRRRR Real Estate Investment

The 8-Step Guide to BRRRR Real Estate Investment

How to turn a profit using the BRRRR method.

 

Buy, Rehab, Rent, Refinance, Repeat. That’s the BRRRR method in a nutshell.

Many investors use this method to generate monthly cash flow and build a real estate empire. Following BRRRR is one of the best ways to build a rental portfolio with little to no money out-of-pocket.

Little to no money down for rental properties? How does that work? Here’s our 8-step guide to BRRRR.

1. Set Your Goals

The first step happens before you even look at a property. It’s important to sit down and think about what you want out of your real estate investing experience. Answer the following questions:

  • Where am I in life now? Where do I want to be?
  • Why do I want to invest in real estate?
  • Where do I want to invest?
  • How many properties do I want?
  • How much cash flow do I want to generate?

Before you take any action, find your answers to all of these questions. This will show you where to start, how to go about it, and when to stop. You’ll get much more out of the BRRRR method if you stay aware of the process as it’s happening.

2. Search For Properties

Now, you can begin the hunt for the right properties. But you’ll need to know the right places to look.

BRRRR projects require undermarket properties. You won’t find these on the MLS, or through many traditional realtors. Undermarket properties are found by wholesalers, investor-friendly realtors, or other real estate professionals.

For advice on getting these off-market, discounted properties, read this post from Hard Money Mike.

3. Get Long-term Loan Approval

Before you buy a house, meet with banks about a long-term loan. You’ll want to find the maximum loan amount you qualify for. This becomes important later in the process when you’re maximizing your refinance.

Once you have pre-approval for this loan, you can move forward with the undermarket property you found.

4. Buy with a Short-term Loan

Undermarket properties have fast closings. Once you find a property, you’ll only have a couple days (or a couple weeks, max) to close the deal. As a buyer, the key to a fast closing is a short-term loan.

The most common short-term loan is a hard money. Although you could also use OPM, or another type of gap funding at this point in the process.

5. Rehab

Once you close on the property, you can begin rehab.

For this step of a BRRRR project, it’s important to strike a balance. An undermarket property will require a lot of repairs, but since it’s not a fix-and-flip, you don’t have to go “all out.” It will be a rental, so you’ll want to make it appealing for tenants. But at the same time, you don’t want to go overboard and lose money on the project.

A good guide for how much money and effort to put into the rehab of a BRRRR is the ARV, after-repair value. You should always renovate enough to meet the ARV.

6. Rent

After rehab, your property is ready to rent. Find a trustworthy, reliable tenant, and then we’re at the exciting part – you start earning cash flow!

7. Refinance

Short-term loans are expensive, so don’t get trapped in yours. You’ll want to get in and get out of the hard money loan at your first opportunity. Refinance the long-term loan in order to get the short-term loan paid off ASAP.

Now, with a cheaper loan payment and a tenant, you’re on your way to wealth!

8. Repeat

At this point, you’ll want to consider the goals you outlined in the first step. You can repeat this process until you’re happy you’ve met your goals.

For More Information

Hard Money Mike can help you get started on your BRRRR journey. 

Download our free BRRRR roadmap at this link. And for more resources, check out these videos from our YouTube channel.

 

Brrrr method

 

Why Realtors Make Good Team Members

Why Realtors Make Good Team Members

Why Realtors Make Good Team Members

If you want to make the most money on your real estate deals, then you need to create a solid team.

And some excellent members to add to your team are investor-friendly realtors.

But, why do realtors make such great team members for real estate investors?

Well, first of all, they have a constant pulse on the market.

They know what’s happening, where it’s happening, and how it’s happening.

Second, discounted properties also tend to fall into their laps, and they can pass those properties on to you.

So, what type of realtor should you work with?

Well, they should do more than put you on their MLS drip. Any realtor can do this, and nowadays, many of the properties on the MLS get listed on sites like Redfin and Zillow.

So, getting on an MLS drip won’t help investors much…especially when we’re looking for under-market properties. And under-market properties aren’t found on the MLS often. The right kind of realtor will have a lot more hustle. They’ll actually search for under market properties and then go through the numbers to decide it’s worth investing in before they present it to you.

Better yet, investor-friendly realtors connect with professionals in various industries, like bankruptcy attorneys. That way, when investment properties pop up, they’ll be one of the first to know about it. And then tell you about it, rather than making you wait to—hopefully—see it on the MLS weeks or months later.

Most importantly, the right realtor will LOVE working with investors.

Unfortunately, about 95% of the realtors do NOT like working with investors. Or, if they do, it’s part-time and not a high priority for them. These are usually more experienced realtors who have an established client list. They don’t really need your business to make money. They already have a system in place.

But, when you find realtors who are investor-friendly, you’ll know. You won’t be a side gig or a part-time project for them. They’ll be hungry to help you find investment properties and make a lot of money.

Many times, these are newer agents who are willing to be trained. They’ll be the ones looking for business and finding ways to make money with you, not off of you. So, rather than selling 3-5 properties a year, they want to sell an investment property every month.

Now, is it a bad idea to team up with both experienced and new realtors?

Not at all.

In fact, it’s a great idea to work with multiple realtors, because they all have different resources, experiences, and ideas. Plus, if one moves away or quits their job, you don’t need to worry about losing your main resource for finding properties. You’ll have others to fill in the gap.

If you want to create a smooth, easy system with your investment properties, then adding a realtor or two…or three…to your team is an excellent idea. Just make sure they like working with investors and are hungry to make money. The hungrier, the better for both of you!

Happy investing!