Tag Archive for: dscr

Secure 100% Financing for Your BRRRR Investment

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Secure 100% Financing for Your BRRRR Investment

Today we are going to discuss how to finance a BRRRR at 100%.  That means no money out of your pocket for the purchase, rehab, closing or even carry. For the past 14 years we have been helping people get 100% financing for BRRRR. It all comes down to one thing, making sure that the people are purchasing good properties at 75% or less. How can you secure 100% financing for your next BRRRR investment? Let’s take a closer look!

How can you achieve success in this current market?

There are a lot of opportunities for real estate investors right now. Just the other day we had a client who had bought a property in the Denver market for $300K. After putting in $50K in rehab, the property was worth $550K in the end. There are many other real estate investors who have been successful in similar situations in spite of the challenging market. How do they achieve such success? The answer is getting the correct upfront loan. While predictions indicate that there will be more opportunities in 2024 and 2025, now is the time to invest. Now is the time to jump in.

Selecting the right loan for you.

Remember that conforming conventional loans have restrictions that prevent investors from refinancing properties within the first year. However, a rate and term loan, such as a DSCR or conventional loan, allows investors to refinance immediately after getting an appraisal. By having a great hard money lender for your purchase, you will be able to refinance and get cash out of the property quickly and easily.

Find the right hard money lender.

It is crucial that real estate investors work with a hard money lender who can get up to 75%. Just to clarify, the 75% is based on the amount that you can refinance. Here at Hard Money Mike we say 75% because most clients can refinance into a conforming or DSCR at 75%. However, if you’re only able to finance up to 70%, then we will have to match whatever you qualify for on the long term or take out loan. It is important to remember that a BRRRR includes a buy, which is the first loan, and then there is a refinance. The refinance dictates how much a lender on the buy can give you. By finding the right hard money lender you will be on the path to success.

Let’s look at some numbers on the buy side.

The first calculation that needs to be done prior to purchasing a property is determining the maximum loan amount. This can be found by multiplying the ARV by 75% or .75. Once the max loan value is determined, real estate investors can then calculate if the property will be able to qualify for 100% BRRRR financing. 

Calculating Max loan amount.

Purchase price: $120K

ARV: $200K

Max loan: $200K x .75 = $150K 

Will it qualify for 100% financing?

Purchase price: $120K

Rehab: $20K

Closing costs + Carry costs: $10K

It is important to remember that closing costs are not only on the buy, but they are on the refinance as well. Also, carry costs should be added to the total in order to cover a few months of monthly payments, taxes, and insurance on the property until it can be rented. In most cases, investors are able to get the property rented before refinancing, which will in turn lower the carry costs. By keeping the purchase price, rehab costs, closing costs, and carry costs all under the maximum loan amount, real estate investors can finance a BRRRR at 100%. 

Finance a BRRRR at 100% today!

In order to finance a BRRRR at 100%, you need to make sure that all of your costs are less than the max loan amount. It is important to have a hard money lender who understands BRRRR’s. Here at Hard Money Mike we can help you run through numbers to make sure that you are in line to get 100% BRRRR financing. 

Watch our most recent video to find out more about how you can Secure 100% Financing for Your BRRRR Investment.

Why You Shouldn’t Use a DSCR Loan for a Fix and Flip

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A DSCR loan is great for rentals, but why don’t they work for flips?

DSCR loans definitely have their place in the real estate investor’s arsenal. But if you’re trying to do a fix and flip, this loan might not be the right fit for you.

How Does a DSCR Loan Work?

DSCR stands for Debt-Service Coverage Ratio and is a loan particularly suited for rental properties. Like any other traditional loan, a DSCR is able to fund up to 80% of the purchase price or appraisal, whichever is lower.

For example, if you have a $200,000 property, the DSCR will cover up to $160,000 (80% of the total purchase price). This leaves $40,000 left for you to cover on your own.

As mentioned above, this loan is very well-suited for properties that generate steady cash flow (like a rental), but they can be more difficult to work with in the fix and flip game.

Why You Shouldn’t Use DSCR for Flips

You Need to be Rent Ready to Get a DSCR

In order to qualify for a DSCR appraisal, a property must be rent ready. This creates a lot of hurdles in the fix and flip world since many flippers are doing more than basic cosmetic repairs. 

DSCRs Have Prepayment Penalties

Most DSCR loans come with prepay penalties. These penalties typically come in 3- or 5-year plans. Again, in a rental market where you’ll be holding onto the property for longer amounts of time, you typically don’t need to worry about the prepay. 

However, the fix and flip market moves quickly. DSCRs penalize investors who pay off these loans quickly, something fix and flip investors often work towards.

You’ll Pay More For Rehab

In addition to the remainder of the purchase price, DSCRs don’t cover renovation costs. This means that even more money will need to come out of your pocket. 

Make Sure Your Loan Fits the Project

DSCRs are a great product for rental properties. However, if you’re looking at doing a fix and flip, take a look at other types of loans.

The most flexible loans are going to be hard money (also called private money) loans. 

We have a ton of free tools on our website that can help you find the right loan to fit your project. We’re also happy to chat with you about any particular deals or questions you have. 

Just reach out to us at Info@HardMoneyMike.com.

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

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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 want to learn more, we have a ton of free tools that can help you in the real estate game. 

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.