The financing options for an investment using the BRRRR (Buy, Rehabilitate, Rent, Refinance, Repeat) are limited to non-typical lenders.
Conventional banks don’t lend on distressed properties since most of them are in the business of real estate note investing. Most lending institutions usually resell your mortgage to Fannie Mae and Freddie Mac.
Guidelines for bank loans to qualify for government programs require a habitable home. Distressed properties are not technically livable and need to be fixed before occupying them.
Since bank loans are not an option, you have to seek other opportunities to fund your first BRRRR property.
You might be lucky and find a credit union that keeps all the mortgages on their balance sheet without reselling. Local lending institutions are more flexible regarding real estate financing, with mortgage limits and debt-to-income ratio concerns. They frequently enable the loan to cover rehabilitation costs as well. You might require an established relationship with the credit union to obtain such a loan.
You can get private money from people you know, such as friends, family, business partners, or other investors. The rates may differ based on the property and your relationship with the lender in this instance. Private lenders frequently finance any required repairs on a property.
Hard money lenders specialize in lending to house flippers and rental investors. The cost and interest rates of hard money loans are generally higher than those available from banks. They will, however, almost certainly pay for repairs and enhancements. Hard money is expensive because they usually charge points on the loans.
The best place to obtain loans is on a real estate crowdfunding platform. We have talked in the past about how you can be an investor lending to others on such platforms. And how to use a checklist to evaluate real estate crowdfunding deals. In the BRRRR investment strategy, you are the borrower and should use the list to make your property attractive to investors.