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.
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.
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.
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.