3 Tips for New Investors When Refinancing for BRRRR During COVID-19

3 Tips for New Investors When Refinancing for BRRRR During COVID-19

2 min read
Palak Shah

Palak Shah (BiggerPockets Podcast episode guest #368) is the founder and owner of Open Spaces Capital and Open Spaces Women. An engineer by trade, after the birth of her two kids, Palak decided to make the move to entrepreneurship to be able to spend more time with her children.

She brought her knowledge and 17 years of experience in building systems, processes, and scaling from her corporate career in engineering leadership to fast track her real estate investing journey. In her first three years investing full-time, Palak purchased, renovated, rented, and refinanced properties creating an almost $5M rental portfolio and generating $1M in annual revenue. It is now her passion to empower other investors to pursue entrepreneurship through real estate investing to live an empowered and financially free life without taking undue risks or over-leveraging through her coaching program Open Spaces Women. Follow her on Instagram @openspaceswomen for tips and motivation for building and scaling your buy and hold portfolio.

Palak worked in engineering leadership in various industries. She was in the nuclear industry for six years until she joined a startup as a consultant to analyze big data to predict power plant failures. A few years later, she moved over to the management side in engineering at a startup for efficiency measures. She then spent six more years in the pharmaceutical industry, running a specifications department at a glass manufacturing factory.

After the birth of her two kids, Palak realized she needed to create a life of financial independence—one that allowed more time for her family while allowing her to still make an impact. She decided to make the move into entrepreneurship, co-founding and managing Open Spaces based in Philadelphia. Her focus is on renovating deteriorated properties in and around the city.

Palak manages the end-to-end lifecycle, starting from sourcing properties, completing renovations, and renting them out, along with financing and investor relationships. She takes pride in bringing people together to achieve the common goal of empowering a community through real estate development. She believes that profitable growth can be achieved, sustained, and even enhanced by embracing diversity in business partners and by engaging with local communities to foster development that is inclusive.

Open Spaces accomplishes this by providing high-quality rental homes and apartments, with great customer service, at prices that are affordable.

Palak is active on Instagram @openspaceswomen and is passionate about inspiring other professionals.

Palak was honored by Billy Penn in the “Who’s Next Real Estate and Housing” series of 2018, highlighting Philadelphia’s most dynamic real estate, housing, and development professionals under the age of 40. She was also featured in the BiggerPockets Podcast episode #368 and Real Estate InvestHER’s podcast episode #47.

Palak graduated with an MS in Mechanical Engineering from University of Illinois.

@openspaceswomen on Instagram

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Ah, finance! A good understanding of finance can turn anyone who claims, “I’m not a numbers person,” into a nerd who loves numbers.

I mentioned in an earlier installment of this series of articles, “BRRRR During COVID,” that there are two things you simply cannot outsource as a real estate investor. The first is deal analysis and the second one is a good understanding of finance.

If you haven’t followed the rest of the articles in this series, I recommend that you go back to the “Buying During COVID-19” post. One of the tips I provide is to use the ARV that the lenders are currently using when you do your deal analysis for acquisition. This is going to help tremendously when you refinance.

Here are a few more key tips to keep moving forward and make the most out of the current situation.

Related: 3 Tips for New Investors Rehabbing for BRRRR During COVID-19


3 Real Estate Refinancing Tips During COVID-19

1. Expand lender relationships

Granted, interest rates are at an all-time low. But obtaining financing is difficult and banks are being more stringent with their criteria. We found ourselves calling many banks trying to get financing lined up and found out that the criteria were in flux. It required us to have a continuous dialogue with them.

Related: BRRRR Investing: The Ultimate Guide to the Buy-Rehab-Rent-Refinance-Repeat Strategy, Made Simple!

We deepened our relationships with lenders who were lending when no one else was. This showed us how reliable they were. We also made some new connections we didn’t have before during this time. And now that lenders are loosening their purse strings, it is a great time to start investigating further.


2. Maintain higher reserves

As a general best practice, you should maintain at least three months of PITI (principal, interest, taxes, and insurance). During COVID, despite 95% of our tenants paying rent in a timely manner, we have increased our reserves to six months of PITI.

Related: The Pros & Cons of the BRRRR (Buy, Rehab, Rent, Refinance, Repeat) Strategy

You should base this on your own risk tolerance.

3. Lock in historic low rates

What an amazing time to refinance properties as a BRRRR investor! Although fewer lenders are still on the playground, the ones that are around are lending at historically low interest rates. I recommend calling multiple banks until you find one that fits your situation.

If you have a primary residence with equity, you could refinance for cash out, HELOC, or HEL to have at your disposal. See my article “How I Went From 3 to 20 Properties Using the Power of Home Equity Loans” for more on how I used this to grow our portfolio.

As an investor and entrepreneur, staying nimble and being able to adapt often has proved Darwin’s theory of evolution a perfect analogy for what we are all about to see.

Do you have any questions about how to implement these?

Ask me in the comments.