BRRR Help - Refinancing Multifamily troubles

9 Replies

So, my wife and I purchased our first investment property in May of 2017 (a 4plex) in Jefferson, La (outsIde of New Orleans). We comepletely renovated one unit and moved into that one unit. We've increased rents on 2 of the other 3 units and soon to be all 3 of the other units. We just recently found out that we are pregnant with TWINS. This has changed our strategy moving forward for investing. We now are in need of a bigger house for us to purchase so we can fit our 4 kids and 2 dogs. My plan was to refinance our 4plex so that we could use some of the equity to put towards our next house. I was also hoping to do some updates to our next house to build some equity with that property as well. But, I'm having trouble refinancing the 4plex. I'm still new to investing, but I've been told that on a multifamily property you are only able to borrow up to 70% of the total value. Because we purchased the 4plex as a Owner Occupancy...we only put down 5%.  When we purchased the 4plex it appraised at $383k and that was our purchase price. We financed around $363k. However, we completely renovated one unit, made exterior updates and small updates to other units (paint & a/c work), increased rents, and the neighborhood has undergone some big positive changes. A new huge hospital was built just blocks away, new developments with commercial buildings and gas stations around the corner, other multifamily properties have sold 500K+), duplexes have sold 300K+, and also just a few streets over there have been some higher end condos built and sold. I have not had an official reappraisal done on the property, but I think the property will appraise for AT LEAST 450k, but I think higher. I‘m not really sure what my options are bc I definitely do not want to sell the 4plex but need to access the equIty. Any advIce Is apprecIated.

@Michael Breedlove first of all congrats on the twins! So as you know already 70% of the conservative appraisal of 450k is only 315k ( about 45 k less than you owe taking into account that you have paid the mortgage for the past year). You would need it to appraise for at least 500k before you would even gain any capital from the refi. So that is off the table. 

Is there any way you would be able to get another loan for a bigger primary residence? Then rent out 100% of the 4plex and use that additional cash flow to offset the new property.  It would be a shame to sell the 4 plex just to buy another house (probably a single family from what I understand). 

If you do sell the 4 plex could you possibly look at getting two separate  properties, one primary and another rental (duplex or single family)? I am just throwing out ideas here that leave you with at least one investment. 

hopefully someone can give some sound advice and you can figure this out before the twins arrive! 

Good luck. 

Thanks on the congrats! Yes, the 4plex currently cashflows positive after all expenses are paid and with only 3 units being rented and 2 of those units still being below market value. So, once we move out and rent out the 4th unit...that’ll be an additional $1,200-$1,300 that we will certainly use a portion of towards our next mortgage. 

We can get another loan for our next property and be able to potentially only put down 3-5%....but, was hoping to purchase a fixer upper that we could build some sweat equity into so that our goals for investing could still remain attainable. Not sure what requirements there are for a 203k renovation loan. But may consider that as well. We just don’t have a ton of money for downpayment. Annnnnd with the twins we also are having to purchase a bigger vehicle too. Ha ha 

@Michael Breedlove don't quote me but I do beleive you would need to use a licensed contractor when taking advantage of a 203k loan. If you want to add "sweat" equity I am assuming you want to do a majority of the work yourself. As nice as buying a fixer upper sounds and forcing equity, I would put more value on the rental property than the new SFR. I would play it safe and get a house that meets your needs with the new additions and needs little work.

Hey @Alexander Wardell , thanks for taking time to post. Yes, you do need a licensed contractor when doing a 203k loan. I own a painting company and have several friends that are licensed contractors. But, you may be right....just look for something that fits our needs that doesn’t require a lot of work might be the way we have to go. 

@Michael Breedlove It's tough doing a renovation yourself with babies. I started a major one just prior to kids and once they came, it slowed drastically and took me a few years lol. If it were me I would hold more value on your forplex then the renovation and get a house that fits your needs that may need updating over time which will get you a little sweat equity but not eat up all your time. That's what I would do if I had it to do over i think.

@Michael Breedlove   As you are an owner occupant, you may be able to get a home equity loan, but I would not expect a very high appraisal given your recent purchase and they are typically conservative drive-by appraisals (so your interior work will not be considered).  These drive-by appraisals are all dependent on the pricing of the neighborhood.

Since you live there, you might be able to get the home equity loan upto 90% LTV, but even if the appraisal comes in a $450k, it would only allow you to pull out $42k or so. If this is an option, I would recommend doing it now, before you start looking for another house.

Also, something to consider is can your DTI really allow you to purchase another house. Most banks will limit the income credit from the rental given your limited ownership (less than 2 years).

wow that's a rough position to be in. If I were there I'd probably sell before the market turns. Take the profits and get a nice house for your family. Then when your feet are under you, start again. 

Kids are messy, expensive and time consuming. So are rentals and tenants. It might put you behind a few years but you'll be thankful being able to sleep comfortably at night knowing you don't have to worry about a water heater blowing while you're also worrying about twins waking up. 

@Mike Wood - thanks for taking the time to post. Yes, when my inlaws got a Heloc a couple years ago, they experienced the drive by appraisal that wasn't too beneficial for their home value. I was considering paying the extra money to have a full appraisal done bc I know it would be worth the expense. The DTI is a good point as well. I just recently have gotten preapproved for a second loan to potentially purchases a SFR and they are allowing me to use some of my current rents as income. But I'm not sure what my situation would look like if I did acquire more debt.

@Anthony R. - you’re right...kids are certainly messy! Ha ha The 4plex cashflows very well for us and once we move out we’ll profit an additional $1,300-$1,400. So, we should be able to continue to put money aside for capex, vacancies, and repairs. But, being a landlord does have its risks as well like you mentioned.