You must be thinking, "this guy is completey out of his mind. Anyone that buys a completely remodeled, up-to-date home in this market will not be moving into it with 25% equity from the start. But what if I told you there was a way? If you are an investor, you are no doubt familiar with the BRRRR niche of investing. BRRRR stands for Buy, Rehab, Rent, Refinance, Repeat. I use this strategy all of the time when I buy houses for cash in my business. But after desperately trying to find a bigger home for my wife and I after my son was born, I took pieces of that niche, and put it to personal use. Here is my strategy on buying a completely remodeled home with little money out of pocket, and having 25% equity from the start!
Step 1 - Find The House
The first step you are going to do is find a distressed property in the area you want to live in. You can find this property with the help of your agent, or you can attempt to locate a property that is off-market and contact the homeowner. My suggestion is to try and find a property that looks like no one lives there, or one that looks like the owner has lost the ability to take care of it. Here is where you are going to be able to buy a property at a discount. You have to find a distressed situation. The property itself could be distressed, or the owner could be distressed i.e. tired landlord.
Step 2 - Making The Numbers Work
Once you have identified the properties that meet this criteria, calculate what the after repair value (ARV) of the home would be if it was completely remodeled. You can do this by either running your own comps or enlisting the help of your agent. Next, you will begin negotiating with the homeowner and attempt to buy the property at a steep discount. My advice is to have an idea of what the repair cost is going to be. Know what you want to do to the home, and ask some of your local contractors what an estimate would be to do this type of job. Once you have determined the what the cost is going to be, you want to make your offer based on the following formula: (ARV x 75%) - repair costs. For example you find a home what has an ARV of $350,000. You consult a reputable contractor and they state it will cost $60,000 to get the home in the condition you want it in.
Your Offer: ($350,000 x 75%) - $60,000 = $202,500.
It may take some time to find a house where the seller will take your offer, but they are out there! And it is much easier getting this offer accepted versus getting a retail home.
Step 3 - Use Someone Else's Money
Find a private or hard money lender. I know I Know, hard money is expensive. But remember, we are only needing this loan for a short amount of time (3-6 months). This is a short term interest only loan. Do your research on a quality hard money lender. I reccomend Longhorn Investments if they service your area. These are great because if you negotiated a good enough deal, this loan is going to cover the puchase and the entire rehab cost. Now, get your loan funded and close on your future house!
Step 4 - Get To Work
Make sure you hire a solid and dependable contractor to do this work for you. After all, this is your future home. Also, make sure you sign a contractors agreement and a contract that specifically states what work will be done, when it will be done, how much, and the pay periods. Never give a contractor 100% of the cost up front! Establish specified percentage of completion periods and pay in installments.
Step 5 - Refinance
The work is done! Next, we are going to find a local mortgage lender to do a refinance for us. They will send out an appraiser and start the application. If you ran your numbers correctly, the home will appraise for $350,000, but you only have $262,500 in the home! This means you have a newly remodeled house, no PMI, and you have tons of equity!
Final Thoughts
This is an excellent way to move into a brand new remodeled home without spending a fortune or overpaying in the process. The real estate market is insane right now! And I don't forsee newer retail homes slowing down from flying off the shelf! This is a unique strategy that I have employed for my personal home, and also a popular strategy I use with Shipwash Properties.
Comments(1)