How much to take out after BRRR

Question

when doing the refi after the rehab. how much do you guys pull out of the property? I currently have a home that I owe about $300k on and am building an ADU in the back after the building the ARV should be around $800k if i rent it out both places the numbers will be around $4700 a month. I could cash out refi around $625k and i would be breaking even after cost. do you guys cash out less to have a monthly income or go all the way and run property with no monthly profit?

Curtis Bidwell · Answer

@Miguel Ochoa I have never taken everything I could, but enough to be ready for my next project while leaving the property productively generating income. Your lender will help here.  While they may give you 90% LTV, their appraisal will be conservative.  A refi appraisal rarely equates to a purchase appraisal.

The answer really varies by the property, but I like to maintain about 70% LTV, allowing adequate cashflow and a hedge against market dips.

Ned Carey · Answer

@Miguel Ochoa Borrow somewhere between the most you can get, and the least you can get by with.Where  you fit in that range depends on your overall financial situation and your risk tolerance.

Personally I would not consider a loan that would not allow the property to cash flow. Most lenders won't make a loan like that anyway.

Brian Larson · Answer

@Miguel Ochoa - I think is great that you are exploring options to build an ADU. I am currently building an ADU at my personal residence in San Jose.

I am using a HELOC to finance my project because a cash out refi does not make sense since my current fixed borrowing rate is so very low.

Additionally, I am only borrowing around 20% more of the property’s current equity to build my project.

Personally, I would be very careful with any ARV assumptions you make (unless you have experience) and I would not over-leverage, especially on a primary residence.

Those are just my thoughts but I am curious to hear from others too.

Kenneth Garrett · Answer

@Miguel Ochoa

Cash out refi’s are great, but I try to leave at least 75% LTV.  With a possible correction in the market more like under 70% is better.  I do not believe in counting on appreciation.  Many investors got burned in the crash because of high leverage, low cash flow or none and counting on appreciation.  In my book, the property must cash flow otherwise it is a liability versus an asset.  The whole concept of Rich Dad Poor Dad Series.

Good Luck.

How much to take out after BRRR

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