No, I don't mean because it's February and cold in Indiana. I mean BRRR - Buy, Rehab, Rent, Refinance (and if you want to get fancy, add an extra R and REPEAT!)
It's a simple strategy and we've seen this work with our clients and want to help you do the same!
Find a 'fixer-upper', usually an as-is property with a lot of work to be done. There are a lot of deals found through the MLS but more commonly, you'll find these from an agent who has a connection in the REO world. It's still important to perform your due diligence but keep in mind, money you'll spend on an inspection is not the best use of your funds.
When you get a property under contract, you'll want to have a private lender who will loan you money for the puchase and work to be completed. The benefit to using a private lender versus a hard money lender is that you'll pay significantly less in interest points.
Where to find private lenders? That's simple - it could be anyone, family, colleagues, relatives. Tell people what you are doing and what you're willing to offer. a CD earning a fraction of a percent in interest could jump up to 8-10% quickly.
The most important key is to be all in for 75% of the property's market value or less so budgeting and ensuring that you don't overspend on your rehab. Why 75%? That's because a typical bank will only loan on a refinance to an investor at that rate. So your goal is to buy a property for no money down to create a sizable amount of equity and cash flow at the same time.
Keep in mind, most banks have 'seasoning' regulations, typically around 12 months. Prior to 12 months, they will only loan on 75% of what is in the property. So to make this work in your favor, the seasoning needs to be right and the property must appraise at the value you need.
Of course, there are other things to factor in with the rehab such as cost overages, emergencies and unknowns - but we'll save that scary stuff for another post specifically on renovating and rehabbing properties.
Once your rehab is complete, you'll need to rent your properties. If you hire a property manager, make sure you have clear rental criteria. A bank won't loan on a portfolio that is not performing and while a vacant property isn't great, a bad tenant is even worse. Evicting a tenant, fixing the damage that they did and the time the property will be off the market are all bad factors. On the flip side, a good property will retain a good tenant which will ultimately mean great cash flow for you!
This is the final phase of the process. Find a lender who will lend to buy-and-hold investors. As with making any offers, finding a quality lender is 100% a numbers game. The more you call, the more you connect and the more likely you'll find a lender.
This is just an example of how to create sizable cash flow with little or no cash down. It works and it can be repeated to consistently build your portfolio and your investments. Are you interested in learning more and getting started? Let's talk - give us a call (317)572-9000 or send us an email to get started.