I planning to do my first BRRR strategy around next spring, but I wanted to make a few things clear first. I understand the basics up until after the refinance. Once we're able to cash out after the new appraised amount was given, does our new 30 year (or however many year your loan is for) mortgage start from scratch? Ex.
Buy for $50,000
Put down $10,000
New value $90,000
Total invested $25,000
Cash out at 80% of value to have $72,000 in cash
New loan ?
I hope I’ve made sense of that. If I am missing something please correct me.
Correct. Couple of notes. Typically it’s done with cash or equivalent. Also, finding a bank to do 20% down on a house that cheap will be tough. 25-30% down will be more common. Also, the cash out refi or refi will most likely be 70-75% of appraised value.
But that’s it. And if you find a good one you can even walk away with a big fat check at closing.
It will be a new loan. Most people will use different lenders for the flip stage than for the refinance stage. In this case, a new loan would start when you refinance. You refinance for $72k, they pay themselves back the $40k they borrowed you, plus interest, points, closing costs, etc, and they cash you out the $32k minus their deductions.
There are some lenders that are willing to do the whole process with you. They will do the same purchase criteria you laid out above (or may even be willing to finance the repairs for you), and then will refinance for you when the time comes. My guess would be that it would start a new loan, but I know that there are some loans that can convert over into a different style later on and you would want to ask your lender about that because there are probably a lot of various criteria for things like that depending on the financial institution.
I appreciate you guys tremendously! Thank you for your answers!