Loan to Value or Cash Out Refinance - BRRRR

2 Replies


My team (three managers) and I are a startup real state investing business and so far we have a good start. We have purchased two distressed properties and are planning to rehab one and buy and hold the other one. However, we are concerned that the banks will not want to refinance the buy and hold property (even with tenants) as the business is fairly new and has no credit, and to top it off, our credit scores are not the best. What is recommended in these types of situations? Thank you!

I handled a similar situation early on with Private Lender funds, when I had a few rental properties under Lease-Option agreements. Banks would not give me credit for the appraised value at purchase because technically I did not yet own the properties, even though I had fully controlled them each for over a year. They would only fund at 80% of the purchase prices (requiring more out of pocket money from me), and this was substantially below the 75% of current appraised value that I was seeking for each. So instead, I purchased them with funds from a Private Lender, held them for an additional year, and then did a cash-out refi the following year. This also created time for me to establish business credit.

I would talk to lenders now and try to figure out what they will and will not accept. There are many banks with many different criteria, so ask around. They will not really be lending on the company's credit but on you and your partners. So if you need to build or fix your credit, I would get on that ASAP.