Refinance Part of the BRRRR??
Hey I am new to the real estate game. I'm looking to buy my first house and I am really liking the idea of the BRRRR Strategy but I am having some trouble completely understanding the Refinance part. I don't have any debt payments and I never have had to take out a loan (Luckily). So when it comes to dealing with banks all I know is depositing cash and checks. Can someone try to help explain how the refinance works? Do they just write you a check for a percentage of what the appraisal was? Do you owe them any money when they do that? Is it basically another loan?
Thanks for the help,
Casey
Hey @Casey Veal - there's a bit to cover but to keep it short & simple:
A cash-out refinance is usually capped at 70% - 75% of appraised value. At closing you will get the 70% of appraised value minus closing costs. If it's a cash-out you'll likely walk away with at least $2k+ at closing (either check or wired funds to your account).
If 70% of appraised value isn't enough to cover a loan you may have against the property and the closing costs, then at closing you may need to bring "cash to close," which basically means you're coming out of pocket to get the loan closed. This type of loan is a rate/term refinance.
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I want to add, as well, if you pay cash for the purchase initially, than you would get a check based on the appraised value minus any closing costs. It also depends on when you are cashing out. Typically a cash out is after 6 months.
But if you pay cash for the property, then you can do delayed financing prior to 6 months. This is also based on appraised value, but you are capped at your initial investment of purchase price and closing costs. If you decide to go this route, there is a way to structure it to get more out of your initial investment as well, by including rehab costs on your closing Docs. This is underwriter dependent as well.
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@George Despotopoulos Hey George thanks for the info
@Jerry Padilla Hey Jerry thanks for the info. I’m planning on using a group of private investors to loan the money, so that’s where I was confused since I won’t be initially taking out a loan from the bank.
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Then when you refinance - all of the private investors would be paid back first and you would get the additional cash after they are paid off.
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Lender NY (#NMLS 1084877) and Prime Lending Licensed in All 50 States (#NMLS 13649 )
- 585-204-6923
- http://www.jerryrpadilla.com
- [email protected]