# DSCR: Will You Be Able to Refinance Your BRRRR Property?

Today we are going to compare and contrast two properties in order to see how the differences can affect your ability to refinance. Here at Hard Money Mike we do a lot of 100% financing for both the purchase as well as the rehab on a BRRRR property. Before jumping into financing, we also make sure that the property will qualify for a long term loan. One thing that you need to keep in mind is that while you may qualify for a rate and term of 75%, the property may not qualify. Let’s take a look at some numbers to see what that means to you and whether or not you will be able to refinance your BRRRR property.

More and more people buy a property, get it all fixed up, and then expect to refinance it at 75% to 80%. Unfortunately, when they go to refinance they end up hitting a wall. Oftentimes the property doesn’t qualify for a refinance based on the DSCR ratio. We want to go over a quick example to make sure that you know how to run through the numbers before you purchase that BRRRR.

## What do we mean when we say that the property doesn’t qualify?

It is important to remember that the numbers have to break even when using the DSCR ratio. This will to keep the interest rates lower. Just to clarify, breaking even means that your rents equal your expenses. While your property and credit score might qualify because they break even, your property might break even at a lower LTV. Why would this occur and why is this different in different zones? Let’s look at the numbers!

Property has a valuation or ARV of \$200K

You are looking for a rate and term at 75%

That would be a loan amount of \$150K

\$200K x .75 = \$150K

You get into a BRRRR and you are all in at \$150K

Rate of 7.5% would be \$1,050 per month for principle and interest on a DSCR loan

## What are the rents for this property in different areas?

It is important to research the rents in the area to make sure that your property will break even. One property might rent for \$1400 while another would rent for \$1800. We want to find the maximum LTV before you purchase a property to see if the property qualifies. While you need to consider your mortgage payment, there are other factors that you need to consider as well. This includes the taxes, insurance, flood insurance (when applicable), and HOA (when applicable). These amounts all have to be added to your payment before comparing it to the rents.

 Property A Property B Taxes \$1800 \$3600 Insurance \$1200 \$3600 Flood/HOA None \$1200 Annual Cost \$3000 \$8400 Monthly Cost \$3000/12 = \$250 \$8400/12 = \$700 Total Monthly Amount \$1050 + \$250 = \$1300 \$1050 + \$700 = \$1750

## In conclusion,

Before you jump into a BRRRR, or before you find out if you can qualify for 100% financing, make sure that the property qualifies. It is important to find out where your rents are, as well as any additional expenses. These numbers will be helpful to see where the property breaks even. Then you so can make sure you can get the money that you are expecting

If you want to make this easy, reach out to us at Hard Money Mike! We are happy to run through the numbers with you to make sure that you’re able to refinance your BRRRR property.

Watch our most recent video DSCR: Will You Be Able to Refinance Your BRRRR Property?

## Top 5 Hard Money Loan Options

What types of hard money loan options are out there for real estate investors?

Hard money (sometimes called private money) loans are often the key to getting started in real estate investing.

Most hard money lenders have a lot of options and many even have particular specialties. This article explains what’s out there so you’re equipped to have discussions with lenders.

Here are the top five loans that you’ll encounter in the hard money industry.

## 1. Fix and Flip Loan

The nice thing about a fix and flip loan is that it has everything to do with the property. Even if you’re less experienced as an investor, if the property has potential, hard money lenders will listen.

If the value is there, hard money lenders could fund up to 100%.

## 2. Bridge Loans

You’ll typically use a bridge loan to either purchase or refinance a project. There are a few places where they generally show up:

### Bridging Gaps Between Projects

If you’re currently working on a project but you come across another great deal, a bridge loan can tap into that equity. You can use this money this as an opportunity to efficiently line up your next project.

A bridge loan would put a small lien on a property that’s about to go up for sale (or is currently being sold) which gives you money to purchase your next project.

Hard money moves more quickly than large, standard bank loans. If the clock is ticking and you need to either pay or lose the deal, a hard money bridge loan can save the day.

### Wholetailing

Bridge loans can also work as a crucial part of wholetailing. Wholetailing involves anything from purchasing a discounted property and performing basic fixes to outsourcing renovations altogether.

Typically, wholetailing only requires simple funding, often 60-90-day loans.

## 3. Gap Loans

You can explore gap funding to cover all sorts of money holes that might show up as you go through a project:

• Down payments
• Getting a project started (consider funding for escrow draws)
• Completing a project
• Carrying project expenses (like HOA fees)

You can even use gap loans to pay off old investors if you have someone who’s ready to move on. Treat your investors well and make sure you have the financial flexibility to let them out if they need.

## 4. Usage Loan

A usage loan is a private non-reporting loan that helps you pay off your credit card balances. If you’re using your personal credit card for business, this can be an important way to raise your credit score.

Real estate investing is all about leverage, and a lot of banks see your credit score as a reflection of your ability to use leverage well.

The higher your credit score, the better terms you’ll often find for loans.

The two big ticket items in the BRRRR method are 1) the purchase, and 2) the refinance.

Hard money loans come into play on the purchase side of a BRRRR. Because hard money is so flexible, it can also often fund a good portion of the rehab.

## Questions?

These are the top five hard money loan options, but if you’re looking for something else, just ask! Remember, hard money lenders are often smaller companies and individuals. They all have preferences and specialties, so get to know them and let them get to know your project.

If you’re interested in learning more, check out the free tools on our website or our YouTube channel where we discuss other tips and tricks for successful investing.

You’re always welcome to reach out to us at Info@HardMoneyMike.com if you have any questions or would like to discuss a deal.

Happy investing!

## BRRRR Strategy: Successful Real Estate Investing with Hard Money and DSCR

How can you combine a BRRRR strategy with hard money and DSCR loans to win in the real estate game?

It’s amazing that there are options out there that let you build a real estate portfolio using little to no money. Using the BRRRR strategy with resources like hard money and DSCR loans lets even new investors get ahead.

Using BRRRRs, hard money, and DSCRs together lets you do your fix and flips with little to no money in.

Although this takes work, it is a tried-and-true method of generating wealth with solid resources and hard work.

## What is the BRRRR Strategy?

BiggerPockets launched this acronym a few years ago. BRRRR (Buy, Rehab, Rent, Refinance, Repeat) centers around fixing and flipping discounted properties.

BRRRR is all about buying properties with built-in equity that can be renovated to raise the value. We’ll likely start seeing more discounted properties in 2024 as foreclosures rise. This will provide a perfect landscape for BRRRRs.

We recently helped a client buy seven properties this year thal all fit in these guidelines. They bought the properties with private money, and they’re refinancing them with a DSCR product.

But it all starts with the Buy: look out for discounted properties. Yes, it takes work to rehab, rent, refinance, and repeat. However, by using the BRRRR strategy, you and clients like the one above are able to maximize profits in your real estate investment journey.

## Where Does Hard Money Come into Play?

Beginning the BRRRR process with buying a new property typically requires a lot of money. But don’t panic!

At the beginning of the article, we told you that you could use the BRRRR strategy with little to no out of pocket costs, and we’re about to tell you how.

Hard money loans are the key to making it all happen. Hard money is super flexible so you can use those loans to not only purchase, but also rehab or even cover closing costs.

At Hard Money Mike, we specialize in hard money loans.

Hard money lenders typically look at your loan to value (LTV). It’s great if your LTVs can be close to 75%, but you’re welcome to reach out if you have any questions or concerns about whether you might qualify for a hard money loan.

## Using DSCR to Refinance Your BRRRRs

Getting your property refinanced is a crucial step in the BRRRR strategy.

DSCR (Debt Service Coverage Ratio) was specifically developed for real estate investors. The benefit of DSCR is that lenders aren’t concerned with your business’s income.

Instead, they look at the specific property to see if it has positive cash flow. If it does and you have good credit, you’ll likely be able to refinance your hard money loan 75%-80% of the current appraised value.

If you bought at a discounted rate but rehabbed the property, the new value should be closer to everything else in the neighborhood.

## BRRRR Strategy + Hard Money + DSCR = Success!

You need all three of these to really be successful at building your real estate wealth from little to no money.

Beginning your real estate investing journey can be a slow process. The first year, you might only complete the BRRRR strategy for one or two properties.

But the longer you do this, the easier it gets. As you understand more, you develop contacts, and everything gets easier.

Realistically, if you’re looking to build wealth from real estate investing but don’t have extra cash on the front end, you could likely use the BRRRR strategy on up to ten properties over the next three years.

By using the resources available (like BRRRRs, hard money, and DSCRs) you can build up your portfolio and wealth with hard work.

## Time to Make Some Deals

Remember, it all starts with buying discounted properties with hard money loans. Then, keep using hard money for rehab, and refinance with DSCRs.

If you have questions about hard money or want to discuss a deal, just reach out to us at Info@HardMoneyMike.com

You can also check out our YouTube channel for more real estate investment strategies and tips.

Happy Investing.

## How to Refinance a Rental Property Into a DSCR Loan

100% leverage for BRRRRs will be back on the table soon. Here’s how to refinance a rental property 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 rental 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 rental property 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 Rental Property 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.

## 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.

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.

Watch the video here:

## 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.

Watch the video here:

## 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.

Watch the video here:

## 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?

Watch the video here:

## 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.

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.

## 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.