Loans for BRRR Investors
When real estate investors are looking to build their investment portfolios, they can choose from several investment strategies. They might flip houses to build up the bank account, or maximize leverage to buy properties, or pursue multifamily investments for economies of scale.
One strategy that many real estate investors choose is the BRRR strategy, in which they purchase distressed properties in need of repair, rehab them, and then refinance into a long-term loan so they can rent out the property. This combines the fix and flip and buy and hold approaches while allowing an investor to add to the number of properties they own. Often, investors can rehab properties in such a way that they can build equity quickly, and leveraging this equity allows the investor to purchase new properties more quickly.
Each strategy has its own pros and cons, and often the decision comes down to an investor’s preferences for risk and time commitment. But another key factor in the decision can be the tools available.
That’s why real estate investors need to know about Fix2Rent®, Lima One Capital’s loan solution designed specifically for BRRR investors. Fix2Rent® sequences a construction loan and a permanent mortgage for an investment property. Unlike other construction to permanent loans, Fix2Rent®’s loan saves time on underwriting and offers discounts on overall costs, which results in a net savings for the investor. Instead of dealing with the uncertainty of what financing might be available when it’s time to refinance, the investor knows that permanent financing is in place and will require a simple conversion.
In this post, we’ll demonstrate how a BRRR investor uses a Fix2Rent® mortgage loan as part of this rehab to rent strategy.
BUY – The investor home buyer finds a property to purchase. To be eligible for Fix2Rent®, this property must be a SFR 1-4 unit. Usually, BRRR investors will choose properties that need cosmetic rehab and perhaps some construction to add a bathroom or bedroom to increase the value.
The Fix2Rent® loan starts as a 13-month interest only loan with fixed rates for interest.
REHAB – The construction phase is when the investor improves the SFR to make it an attractive rental. Instead of going to build a home, they rehab an existing structure. This allows the investor to charge a higher rent, creating a monthly profit. This also increases the value of the property, which improves the equity position the investor has in the property. When the investor gets permanent financing, they can pull this equity out of the property and use it for the next BRRR project.
The Fix2Rent® loan from Lima One Capital is unique because all construction draws are handled in-house by Lima One. Plus, investors do not have to pay interest on undrawn construction fees, which allows investors with cash reserves to save on the amount of interest they pay during the rehab.
RENT – Once rehab has been completed, the investor rents out the home, taking advantage of the higher rents that the completed rehab can provide. Generally, investors will get a renter in place before moving to the refinance stage.
REFINANCE – Once the rehab is complete and a renter is in place, the investor refinances with construction to permanent loan. This allows the investor to cash out the equity of the property and use that money to purchase their next flip or SFR property.
The Fix2Rent® loan offers an adjustable rate for long-term financing, which means investors will benefit from the best available rates at the time of loan closing. Unlike other construction to perm loan programs that require full underwriting on multiple loans, Fix2Rent® saves time by reusing many of the underwriting documents from the rehab loan. Then the investor converts the loan into permanent financing, choosing options in terms of ARMs, term, prepayment, and more. That gives investors flexibility to find the most attractive interest rate available at the time of conversion.
No other loan program can combine convenience with savings like Fix2Rent®. That’s why investors choose the Fix2Rent® construction loans from Lima One.
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