BRRR on Personal Residence (BRR?)

7 Replies

Hello BP Community.

This maybe a stupid question, but I am curious if there is a way to utilize the rehab and refinance method on a personal residence. Say I bought a house using all cash and while living there I slowly fixed the place. The ultimate goal of eventually renting it out after a year or so, but can I refinance the property and pull the cash out while I am living there? 

A hypothetical example:

I buy for $30k cash. Put $10k repairs into it while living there(a year or so) and have it appraised at $60k. Refinance at 70% LTV pulling out $42k. After that I rent it out at $700/month. Use the $42k cash to put into next home and perhaps repeat this process. Similar to a live-in flip process but renting it out afterwards instead.

Any input is appreciated! 

Lance

Yes!!! You can absolutely do that. Read Brandon Turner's story. You don't have to use flipping (selling) as your exit strategy. After 1 year, you should be able to refi the property. Be sure you're not overestimating what the ARV will be. But, it's a great strategy. If you're doing conventional financing, which I hope you are, try to use a smaller, local lender. That way, when you start getting past 4 units, you'll have a relationship that should allow you to morph directly into a portfolio model. Good luck!

Thanks for the reply @Hattie Dizmond . Good advice about a local bank. I've actually been planning on visiting one soon for that purpose even though I won't be in the position to buy for another 6 months or so.So even if if the above hypothetical deal only appraises for $50k and I get $35k out of it would that still be considered a good deal? Say I get $30k out of it. I'm still getting a rental property out of it right?

@Lance Middleton . If you can pull $30k out, after a year. Then you are only into the property for $10k. Which is the rehab you put in. $10k is a pretty darn good investment to walm away with a cash flowing property! I don't know what the market is like where you are. Those prices, here in DFW, would put you in a D/F neighborhood, which brings its own challenges. Just make sure you're prepared for the realities of what managing this property will be.

Updated almost 3 years ago

Sorry for the typos. I was on my phone, and the app cuts off my responses, so I can't always see what I'm typing.

I would say make sure you find a lender that knows real estate investing and what you plan to do, you don't need to move to portfolio financing until you hit 10 properties as both Fannie Mae and Freddie Mac will lend to borrowers up to 10 loans.

@Lance Middleton , this is how I did it  3 years ago. i cash out- refinance my house and got 75% from the bank's appraised value  for $108K -  I own the house for 20 years plus and paid off the mortgage years ago.  Once I got the money from the bank, on the first year I brought one triplex and one twoplex. On the triplex I paid cash for  it and put in additional $15K for updating and fixing ( one unit was vacant while 2 units were occupied with very low rent).   The rents from the 2 units was enough to pay for mortgage's  payment from refinancing my house. 

After  done fixing, I put  the tenant in, with the market rent's rate. The two inherited tenants I non renew them as the lease expired and done some small updated and rent out with the market's rate.  It took me about 9 month then I cash out refinance my triplex with the 30 years fixed rate.  I used that money to buy a paid in full sfh and another duplex.  I used my original $108K as a seed money to buy the rental income properties.  when I turned 59 1/2 year old ( I am 62 years old now ) I withdrawal  $80k from my 401K  as a seed money.  Currently I have 2 tripex, 3 duplex, 2 sfh ( 1 paid in full), total 14 units. I am still living on my own home.

shop around for the local banks.  I have two bankers that works with me.  One is portfolio lender that their appraisal is just drive-by the property  that I am interested and they will tell me if they'll  lend me the money or not.  If they do, it will be a term loan with 25% down and  a competitive interest rates. Once I buy the property, I used my seed money to fix things up and then refinance with the traditional loan with 30 fix rate with the second banker.

Good luck with your journey with real estate investing.

Chinda

Thank you for the responses everyone! Would this strategy still work if I only put say... 50% down? It's possible I will not have the funds for an all out cash purchase to begin with. The reason I ask is because I am renting and would like to purchase something before this lease ends(I do not have a month to month option).