Glendora, CA · Member since 2016 · 106 posts · 21 votes
I just started to read David Greene’s book buy rehab rent Refinance repeat... and noticed at the beginning of the book He mentions buying the property outright then Rehab .rent and Refinance.... however, don’t people finance the property to get into the deal in the first place? What If one does not have enough money to buy a property outright.. Is the Brrrr not as effective if you finance first to get into the deal then Refinance later once the tenant is in pace???? technically should it even be called A Refinance If one has no loan against the property to begin with???
Lender · Boulder, CO · Member since 2019 · 44 posts · 35 votes
7y
@Simon Ruiz
Many BRRRR investors use private/hard money to acquire and renovate properties before refinancing into a 30yr rental loan. Their are advantages to financing instead of buying and renovating with all cash.
Advantages to financing:
1) allows investor to have multiple BRRRR projects going at once with the same amount of cash out the door.
2) a rate/term refinance into long term is much easier to close, typically allows for higher LTV and lower rate then cash out refinances. Why??? Lenders providing long term financing are at the mercy of the capital markets...who see cash out as a increase of risk thus reduce leverage and increase yield requirements.
Cash out refinances typically require seasoning period and may require very detailed proof of the cash you spent rehabbing the property. Taking longer to get you cash out of the deal and likely forcing more cash to be locked into the property.
3) a savvy investor can pull out most or all of their down payment during the rehab stage and line themselves for rate term refinance at which typically has a rate .5% lower than cash out rate. You will need to work with the right bridge and long term financing partner to get this done.
Advantages to cash:
1) you don't need appraisal to purchase as you would with most lenders. (The Con to this is you don't have 3rd party value opinion to double check your estimated as-is and ARV value).
2) you can closes without financing contingency which sellers prefer. (Good private/hard money lender can close in 5-10 days if you are pre approved which is as fast as most title companies can be ready to close).
3). No financing cost on the "BR" portion of BRRRR.
PS - I may be biased as I use financing for my BRRRR projects and act as a lender myself. Looking forward to other commentary on this.
Rental Property Investor · Gulfport, MS · Member since 2018 · 113 posts · 133 votes
7y
@Simon Ruiz sure you can purchase with a loan up front then refi out later. You just have to be purchasing a house that is financable to a bank and have to pay loan fees twice. Additionally, you have to buy from someone that will allow you to have a financing contingency and longer close period. Buying with cash removes these issues and opens up doors to buy cheaper, off market properties which is really what you need to make brrrr work in most markets.
Rental Property Investor · Chubbuck, ID · Member since 2018 · 532 posts · 466 votes
7y
Most brrr projects will not work if it is a property that you can do traditional financing on. Why would someone sell you a house without issues for 70% ARV? You can finance with a hml or private money or a heloc on your personal residence but you will probably not get a Fannie Mae loan from your local financial institution. You are usually solving someone's problems to purchase the property and need cash whether it is yours or someone else's. I recommend that you should bring some cash Incase you have issues. The refinance after is just to recycle your initial investment and build instant equity and cash flow.
Glendora, CA · Member since 2016 · 106 posts · 21 votes
7y
@Craig Jeppesen Yes I see what you mean.... and I think this is a critical step. Im just wondering what the general concise is is for people that do this.
Lender · Boulder, CO · Member since 2019 · 44 posts · 35 votes
7y
@Simon Ruiz
Many BRRRR investors use private/hard money to acquire and renovate properties before refinancing into a 30yr rental loan. Their are advantages to financing instead of buying and renovating with all cash.
Advantages to financing:
1) allows investor to have multiple BRRRR projects going at once with the same amount of cash out the door.
2) a rate/term refinance into long term is much easier to close, typically allows for higher LTV and lower rate then cash out refinances. Why??? Lenders providing long term financing are at the mercy of the capital markets...who see cash out as a increase of risk thus reduce leverage and increase yield requirements.
Cash out refinances typically require seasoning period and may require very detailed proof of the cash you spent rehabbing the property. Taking longer to get you cash out of the deal and likely forcing more cash to be locked into the property.
3) a savvy investor can pull out most or all of their down payment during the rehab stage and line themselves for rate term refinance at which typically has a rate .5% lower than cash out rate. You will need to work with the right bridge and long term financing partner to get this done.
Advantages to cash:
1) you don't need appraisal to purchase as you would with most lenders. (The Con to this is you don't have 3rd party value opinion to double check your estimated as-is and ARV value).
2) you can closes without financing contingency which sellers prefer. (Good private/hard money lender can close in 5-10 days if you are pre approved which is as fast as most title companies can be ready to close).
3). No financing cost on the "BR" portion of BRRRR.
PS - I may be biased as I use financing for my BRRRR projects and act as a lender myself. Looking forward to other commentary on this.
Depending on the renovations needed, the property may not qualify for conventional financing.
There are renovation loans available that you can use to purchase the first few properties with and renovate. Then you could do a cash out refinance at 6 months.