@Michael Doherty What documents did the lender require for the refi ? 

@Anvith Amin I ended up using the same lender for the refi that I had on prior deals so he already had a lot of information from me. But he needed, articles of incorporation for the LLC, operating agreement, 3 months bank statement, loan application, pay stub, license, proof of insurance.

That's why BRRR is the best :)

Great story and learning experience. Glad you came out on top. However, not sure the $9K covered your Advil bills.  Great job

@Michael Doherty Thanks for your response. Do they also take your FICO score into account ?

@Michael Doherty Congratulations!!! 👍🏾 Man😁Thx for sharing your experience, it has me so excited for what I want to do. I’m a newbie I was looking at BP forums to see the best way to get into renovating multi-families to rent. This Looks Promising.

Thx Again!

Originally posted by @Michael Doherty :

Here's a recount of my first BRRRR (Buy- Renovate-Rent-Refinance-Repeat) deal with specific details/numbers. This post is long and detailed, but for those who spend the time to read through it, I hope it helps.

How did I found the deal:

I found this deal on the MLS. It was a foreclosure and soon after submitting my offer, I found out another investor outbid me. It wasn't until 2 weeks later, my agent informed me the original investors financing fell through and my offer was accepted.

The Property and Location:

The property is an oversized two family house right next to a major Hospital and University in Middletown, Ct. Unit 1 has 3BR 1B and Unit 2 has 3BR 1B with 2 large rooms in the finished attic. From a location standpoint, I was pretty familiar with the area and believed it would be sought after in 3-5 years. I have already started to see many restaurants and breweries popping up in town.

Financing:

Listing: $130k 

Purchase Price: $118k

Financing: Hard Money Lender to fund 90% of the Purchase Price, 90% of the renovations for 3pts and 11.5% interest for 12 months no prepayment penalty. I had only done 2 prior deals (no flips) so the rate was slightly higher.

Rehab Budget: $30k

ARV (estimate): $215k

Rent (estimate): $2,800

• Scope of work: 
  Convert Unit 2 from electric to gas heat. Unit 1 had already been converted so I knew gas lines were in place.
• Install new on demand hot water system for 2nd floor unit. 
• Install Luxury Vinyl Plank flooring (LVP) throughout both units (Home Decorators Collection Blue Cedar Grey from Home Depot)
• Install new counter tops and cabinets in 2nd floor kitchen
• New Vanity/shower for 2nd floor unit
• Install 3 new windows
• Install Sump pump in basement
• Update washer dryer hooks (each unit)
• Paint all ceilings/walls/ trim ( Agreeable Grey from Sherman Williams)
• New appliances for 2nd floor kitchen (used from Facebook Market Place)

Holding Costs: $8,271

• 4 months of $1,284 interest only payments
• Taxes
• Utilities
• 6 months Builders Risk/General Liability Premium

After all said and done I spent $28,397 (not included holding costs) and was under budget!

Rent:

I was able to rent the top unit for $1,400 and the bottom unit for $1,375 totaling $2,775.

Refinance:

Because the renovation only took 3 months, I was looking for a lender who would refinance the deal without a seasoning period. After doing some research I came across a lender (found him here on Bigger Pockets) who would do a 75% cash out refi, 30 yr fixed @5.965% for 2.5pts, No seasoning.

When I originally financed the deal with the hard money lender I received two appraisals. The first was an as is appraisal for $120k. It also included a projected appraisal (including the scope of my work) for $220k (5k higher than my ARV!!)

Unfortunately my REFI appraisal came back at $201,500- 17k under the projected appraisal.

My lender then agreed to change the terms to 80% LTV to make this work. Two days before closing they changed their mind and could no longer do the 80% LTV, only 75% LTV. They would not budge and did not let me dispute the appraisal so I ended up dropping them and starting my search over. Moreover, I ended up finding another lender who would finance 75% cash out, 1.5pts, 30 yr fixed at 6.6% no seasoning. Their appraisal it came back @ $200,500- 1k less than the original!!!! At this point I figured I was sh** out of luck and should just eat the difference. However, I ended up writing a very detailed letter to the appraiser explaining why I think certain comps should be used vs others and he ended up increasing the value to $205,000!!!.

So after all said and done here is was the numbers look like:

Hard Money Loan

Hard Money Loan Payoff: $134k

Cash into the deal: $24k (includes 10% down on loan, 10% of rehab costs, closing costs)

Refi: 75% of $205,000= $153,750

Cash out: $153,750- $135k(hard money pay off)= $18,750

Closing costs: $9k (escrowed taxes and Insurance)

Cash left in the deal= $14,250

• Math behind it: (18,750-9k)= $9,750 (24k-9,750) = $14,250
• In other words, I was able to walk with a check for $9,750 even though I received $18,750 cash out from the bank. After my initial investment of $24,000- $9750 (check) leaves me with $14,250 left in deal as mentioned above.
• 
  
• The house could conservatively sell for $220,000 in its current state. If you were to put a traditional 20% down you would be $44,000 out of pocket w/o closing costs instead of $14,250. THAT is the power of the BRRRR.

Monthly Debt Service

PITI= $1,501

Income: $2,775

Monthly Cash flow before expenses: $774

What did I learn?

Always, Always, Always have a conservative ARV. The appraisal part of the process is the only part that is completely out of your control. Another human is determining your properties value and it is completely subjective. It still boggles my mind that we do not have a automatized system for appraisals yet.

Don’t be scared to fire your contractor at any point in the process. I would personally rather pay a higher rate for a contractor that does not eat up my time/money and can execute the job correctly.

I will most likely use the delayed financing technique described in the forums on my next BRRRR.

Trying to find a lender who does not require seasoning and still has a competitive rate proved to be a challenge

DO NOT let you emotions get the best of you. It's a business, treat it like one. If I didn't get so angry with my REFI lender who changed his terms from 80% LTV to 75% at the last minute- I would be left with a 30 yr fixed rate @5.96% instead of 6.6%.

It still costs money to complete the BRRRR. You need working capital and should have reserves for the unexpected.

What’s next?

I plan on holding onto this asset. Since completely the BRRRR process, I honestly think it is one of the best methods in REI to scale and build wealth. It is NOT a get reach quick scheme, but a way to have a cash flowing asset with all the deferred maintenance complete without having to put the traditional 20% down. I have since partnered with someone and purchased a 3 family. Our intention was to BRRRR but the lack of comps in the area have steered us towards a flip.

Please comment with your thoughts, tips, advice and stories.

Congrats Michael,

I have a quick question. 

Did you have to put the rehab money upfront and then get it reimbursed by the hard money lender? 

How were you able to so accurately determine rehab costs? Did your contractor come with you to see the house before you made offer? 

@Anvith Amin yes they do. Having a hirer FICO will give you a better rate generally speaking. 

@Daniel Mendez Not exactly. I financed the rehab with a hard money lender. He funded 90% of the purchase price and 90% of the rehab. My rehab was 30k so I only had to put 3k down towards the costs. As my work is completed I get 'draws' from the lender to reimburse my contractor. 

@Eric Williams yep exactly. He walked through the property with me and verified that it would cost roughly 30k to do this rehab. 

Mike, I'm new to BP and your post was exactly what a newbie needs to see, appreciate the breakdown and details.
Looking forward to seeing your deals in the future.

Thanks for sharing! Helps a lot to see the process laid out like this.

Originally posted by @Michael Doherty :

@Brandon Johnson The more beer money the better! Definitely learned a lot and can hopefully pull a bit more out on the next one. Thank you for the kind words! 

@Amanda Culleton good luck! Reach out anytime with questions. 

@Alpha Journal REALLY great question. My first investment as a duplex in which I house hacked as well. I only had enough money to do the FHA 3.5% down so the decision was easy. In your case, there's a lot to debate.

You could look at is like: If you put 3.5-5% down you will have a lot more money in the bank can perhaps have the capital to do MULTIPLE deals. Or you could put the 20% down avoid PMI- have a better cash flowing asset- but there's the opportunity cost of not having that additional cash on hand....

Personally.... I would split the difference. I would put down 5-10% on a conventional loan.... I believe there's products out there where you can still have a low down loan (5-10% and STILL avoid PMI insurance). I would have the conversation with different lenders to see what's out there like this. In this option you get the benefit of having a low down loan with additional cash in the bank for other opportunities/ reserves and you still avoid PMI Insurance.

If you end up choosing the low down payment- try and get as many units as you can. That is one regret I have, settling for a duplex when I could have gotten a 4-plex for the same low down payment. Albeit, it will cost you more moeny to aquire but still the same 3.5-5% down.

My PMI payment is $125 a month on a 180k note for reference.

 Thanks for you response @micheal. This is the first time I'm hearing about the products out there where you can still have a low down loan (5-10% and STILL avoid PMI insurance). Just learned something new. I would love to link up with you since you live in CT. Any recommendations regarding realtors in CT area you've worked with whose familiar with the BRRRR strategy?

@Clay Ickes Not really an apples to apples comparison regarding no PMI in these loans. The terms/interest rates make up the difference.

Originally posted by @Michael Doherty :

@Anvith Amin yes they do. Having a hirer FICO will give you a better rate generally speaking. 

@Daniel Mendez Not exactly. I financed the rehab with a hard money lender. He funded 90% of the purchase price and 90% of the rehab. My rehab was 30k so I only had to put 3k down towards the costs. As my work is completed I get 'draws' from the lender to reimburse my contractor. 

@Eric Williams yep exactly. He walked through the property with me and verified that it would cost roughly 30k to do this rehab. 

Gotcha! Cause I spoke to one hard money lender and they said I had to pay first and then get reimbursed. Another quick question, did this hard money lender lend to you as an individual or to your LLC? Most of the hard money lenders I have talked to only lend to LLC's. That is the reason why I am asking.

@Daniel Mendez my lender also required an LLC so I created one. It's pretty easy to set up and if you really don't feel comfortable you can have your attorney do it.

@Michael Doherty congratulations! Thank you so much for sharing and documenting the process, as well as successes and lessons learned. Very insightful!

On the seasoning end, we have helped people finance with hard money, and then actually give them a "LTV/Cash Out Draw" at the end of our loan (if they want to leverage the equity that they just built by rehabbing the property). This allows them to maximize their cash out of their equity they just built, while allowing them to do a rate/term refinance with their takeout loan.

This helps with two things:
- Rate/term refinances typically don't have any seasoning requirements like a cash out refinance would, so you can get it completed quicker
- Rate/term refinances will have lower rates than a cash out.

We only lend in Arizona right now, but perhaps you could find a lender who is willing to do a similar set up.

@Mike Zins this is gold. I will definitely be looking for something like this next time. What is this product called? Additionally if you ever expand to Ct, please let me know. 

@Mike Zins Please expand into Alabama!

Great information.  Will a corporation be acceptable as well for lending purposes?

@Michael Doherty Congratulations. Looks like hard work paid off.

@Roudy Neree great question. I am not 100% sure if a corporation will be acceptable in the eyes of a hard money lender. My guess would be YES, but again I would look into this more or have the discussion with different lenders.  

Originally posted by @Michael Doherty :

Here's a recount of my first BRRRR (Buy- Renovate-Rent-Refinance-Repeat) deal with specific details/numbers. This post is long and detailed, but for those who spend the time to read through it, I hope it helps.

How did I found the deal:

I found this deal on the MLS. It was a foreclosure and soon after submitting my offer, I found out another investor outbid me. It wasn't until 2 weeks later, my agent informed me the original investors financing fell through and my offer was accepted.

The Property and Location:

The property is an oversized two family house right next to a major Hospital and University in Middletown, Ct. Unit 1 has 3BR 1B and Unit 2 has 3BR 1B with 2 large rooms in the finished attic. From a location standpoint, I was pretty familiar with the area and believed it would be sought after in 3-5 years. I have already started to see many restaurants and breweries popping up in town.

Financing:

Listing: $130k 

Purchase Price: $118k

Financing: Hard Money Lender to fund 90% of the Purchase Price, 90% of the renovations for 3pts and 11.5% interest for 12 months no prepayment penalty. I had only done 2 prior deals (no flips) so the rate was slightly higher.

Rehab Budget: $30k

ARV (estimate): $215k

Rent (estimate): $2,800

• Scope of work: 
  Convert Unit 2 from electric to gas heat. Unit 1 had already been converted so I knew gas lines were in place.
• Install new on demand hot water system for 2nd floor unit. 
• Install Luxury Vinyl Plank flooring (LVP) throughout both units (Home Decorators Collection Blue Cedar Grey from Home Depot)
• Install new counter tops and cabinets in 2nd floor kitchen
• New Vanity/shower for 2nd floor unit
• Install 3 new windows
• Install Sump pump in basement
• Update washer dryer hooks (each unit)
• Paint all ceilings/walls/ trim ( Agreeable Grey from Sherman Williams)
• New appliances for 2nd floor kitchen (used from Facebook Market Place)

Holding Costs: $8,271

• 4 months of $1,284 interest only payments
• Taxes
• Utilities
• 6 months Builders Risk/General Liability Premium

After all said and done I spent $28,397 (not included holding costs) and was under budget!

Rent:

I was able to rent the top unit for $1,400 and the bottom unit for $1,375 totaling $2,775.

Refinance:

Because the renovation only took 3 months, I was looking for a lender who would refinance the deal without a seasoning period. After doing some research I came across a lender (found him here on Bigger Pockets) who would do a 75% cash out refi, 30 yr fixed @5.965% for 2.5pts, No seasoning.

When I originally financed the deal with the hard money lender I received two appraisals. The first was an as is appraisal for $120k. It also included a projected appraisal (including the scope of my work) for $220k (5k higher than my ARV!!)

Unfortunately my REFI appraisal came back at $201,500- 17k under the projected appraisal.

My lender then agreed to change the terms to 80% LTV to make this work. Two days before closing they changed their mind and could no longer do the 80% LTV, only 75% LTV. They would not budge and did not let me dispute the appraisal so I ended up dropping them and starting my search over. Moreover, I ended up finding another lender who would finance 75% cash out, 1.5pts, 30 yr fixed at 6.6% no seasoning. Their appraisal it came back @ $200,500- 1k less than the original!!!! At this point I figured I was sh** out of luck and should just eat the difference. However, I ended up writing a very detailed letter to the appraiser explaining why I think certain comps should be used vs others and he ended up increasing the value to $205,000!!!.

So after all said and done here is was the numbers look like:

Hard Money Loan

Hard Money Loan Payoff: $134k

Cash into the deal: $24k (includes 10% down on loan, 10% of rehab costs, closing costs)

Refi: 75% of $205,000= $153,750

Cash out: $153,750- $135k(hard money pay off)= $18,750

Closing costs: $9k (escrowed taxes and Insurance)

Cash left in the deal= $14,250

• Math behind it: (18,750-9k)= $9,750 (24k-9,750) = $14,250
• In other words, I was able to walk with a check for $9,750 even though I received $18,750 cash out from the bank. After my initial investment of $24,000- $9750 (check) leaves me with $14,250 left in deal as mentioned above.
• 
  
• The house could conservatively sell for $220,000 in its current state. If you were to put a traditional 20% down you would be $44,000 out of pocket w/o closing costs instead of $14,250. THAT is the power of the BRRRR.

Monthly Debt Service

PITI= $1,501

Income: $2,775

Monthly Cash flow before expenses: $774

What did I learn?

Always, Always, Always have a conservative ARV. The appraisal part of the process is the only part that is completely out of your control. Another human is determining your properties value and it is completely subjective. It still boggles my mind that we do not have a automatized system for appraisals yet.

Don’t be scared to fire your contractor at any point in the process. I would personally rather pay a higher rate for a contractor that does not eat up my time/money and can execute the job correctly.

I will most likely use the delayed financing technique described in the forums on my next BRRRR.

Trying to find a lender who does not require seasoning and still has a competitive rate proved to be a challenge

DO NOT let you emotions get the best of you. It's a business, treat it like one. If I didn't get so angry with my REFI lender who changed his terms from 80% LTV to 75% at the last minute- I would be left with a 30 yr fixed rate @5.96% instead of 6.6%.

It still costs money to complete the BRRRR. You need working capital and should have reserves for the unexpected.

What’s next?

I plan on holding onto this asset. Since completely the BRRRR process, I honestly think it is one of the best methods in REI to scale and build wealth. It is NOT a get reach quick scheme, but a way to have a cash flowing asset with all the deferred maintenance complete without having to put the traditional 20% down. I have since partnered with someone and purchased a 3 family. Our intention was to BRRRR but the lack of comps in the area have steered us towards a flip.

Please comment with your thoughts, tips, advice and stories.

A read well worth the time thanks guy I'm headed back for the numbers crunch thank you 

@Michael Doherty @Laura Verderber - thanks! We call it the Klinkloans Cash Out Hack. If we ever expand, we will let you know! Or let us know if you ever are investing in Arizona and need anything. 

@Mike Zins Well, I also in invest in NM. Maybe you'll expand there sooner, lol.

Originally posted by @Michael Doherty :

Here's a recount of my first BRRRR (Buy- Renovate-Rent-Refinance-Repeat) deal with specific details/numbers. This post is long and detailed, but for those who spend the time to read through it, I hope it helps.

How did I found the deal:

I found this deal on the MLS. It was a foreclosure and soon after submitting my offer, I found out another investor outbid me. It wasn't until 2 weeks later, my agent informed me the original investors financing fell through and my offer was accepted.

The Property and Location:

The property is an oversized two family house right next to a major Hospital and University in Middletown, Ct. Unit 1 has 3BR 1B and Unit 2 has 3BR 1B with 2 large rooms in the finished attic. From a location standpoint, I was pretty familiar with the area and believed it would be sought after in 3-5 years. I have already started to see many restaurants and breweries popping up in town.

Financing:

Listing: $130k 

Purchase Price: $118k

Financing: Hard Money Lender to fund 90% of the Purchase Price, 90% of the renovations for 3pts and 11.5% interest for 12 months no prepayment penalty. I had only done 2 prior deals (no flips) so the rate was slightly higher.

Rehab Budget: $30k

ARV (estimate): $215k

Rent (estimate): $2,800

• Scope of work: 
  Convert Unit 2 from electric to gas heat. Unit 1 had already been converted so I knew gas lines were in place.
• Install new on demand hot water system for 2nd floor unit. 
• Install Luxury Vinyl Plank flooring (LVP) throughout both units (Home Decorators Collection Blue Cedar Grey from Home Depot)
• Install new counter tops and cabinets in 2nd floor kitchen
• New Vanity/shower for 2nd floor unit
• Install 3 new windows
• Install Sump pump in basement
• Update washer dryer hooks (each unit)
• Paint all ceilings/walls/ trim ( Agreeable Grey from Sherman Williams)
• New appliances for 2nd floor kitchen (used from Facebook Market Place)

Holding Costs: $8,271

• 4 months of $1,284 interest only payments
• Taxes
• Utilities
• 6 months Builders Risk/General Liability Premium

After all said and done I spent $28,397 (not included holding costs) and was under budget!

Rent:

I was able to rent the top unit for $1,400 and the bottom unit for $1,375 totaling $2,775.

Refinance:

Because the renovation only took 3 months, I was looking for a lender who would refinance the deal without a seasoning period. After doing some research I came across a lender (found him here on Bigger Pockets) who would do a 75% cash out refi, 30 yr fixed @5.965% for 2.5pts, No seasoning.

When I originally financed the deal with the hard money lender I received two appraisals. The first was an as is appraisal for $120k. It also included a projected appraisal (including the scope of my work) for $220k (5k higher than my ARV!!)

Unfortunately my REFI appraisal came back at $201,500- 17k under the projected appraisal.

My lender then agreed to change the terms to 80% LTV to make this work. Two days before closing they changed their mind and could no longer do the 80% LTV, only 75% LTV. They would not budge and did not let me dispute the appraisal so I ended up dropping them and starting my search over. Moreover, I ended up finding another lender who would finance 75% cash out, 1.5pts, 30 yr fixed at 6.6% no seasoning. Their appraisal it came back @ $200,500- 1k less than the original!!!! At this point I figured I was sh** out of luck and should just eat the difference. However, I ended up writing a very detailed letter to the appraiser explaining why I think certain comps should be used vs others and he ended up increasing the value to $205,000!!!.

So after all said and done here is was the numbers look like:

Hard Money Loan

Hard Money Loan Payoff: $134k

Cash into the deal: $24k (includes 10% down on loan, 10% of rehab costs, closing costs)

Refi: 75% of $205,000= $153,750

Cash out: $153,750- $135k(hard money pay off)= $18,750

Closing costs: $9k (escrowed taxes and Insurance)

Cash left in the deal= $14,250

• Math behind it: (18,750-9k)= $9,750 (24k-9,750) = $14,250
• In other words, I was able to walk with a check for $9,750 even though I received $18,750 cash out from the bank. After my initial investment of $24,000- $9750 (check) leaves me with $14,250 left in deal as mentioned above.
• 
  
• The house could conservatively sell for $220,000 in its current state. If you were to put a traditional 20% down you would be $44,000 out of pocket w/o closing costs instead of $14,250. THAT is the power of the BRRRR.

Monthly Debt Service

PITI= $1,501

Income: $2,775

Monthly Cash flow before expenses: $774

What did I learn?

Always, Always, Always have a conservative ARV. The appraisal part of the process is the only part that is completely out of your control. Another human is determining your properties value and it is completely subjective. It still boggles my mind that we do not have a automatized system for appraisals yet.

Don’t be scared to fire your contractor at any point in the process. I would personally rather pay a higher rate for a contractor that does not eat up my time/money and can execute the job correctly.

I will most likely use the delayed financing technique described in the forums on my next BRRRR.

Trying to find a lender who does not require seasoning and still has a competitive rate proved to be a challenge

DO NOT let you emotions get the best of you. It's a business, treat it like one. If I didn't get so angry with my REFI lender who changed his terms from 80% LTV to 75% at the last minute- I would be left with a 30 yr fixed rate @5.96% instead of 6.6%.

It still costs money to complete the BRRRR. You need working capital and should have reserves for the unexpected.

What’s next?

I plan on holding onto this asset. Since completely the BRRRR process, I honestly think it is one of the best methods in REI to scale and build wealth. It is NOT a get reach quick scheme, but a way to have a cash flowing asset with all the deferred maintenance complete without having to put the traditional 20% down. I have since partnered with someone and purchased a 3 family. Our intention was to BRRRR but the lack of comps in the area have steered us towards a flip.

Please comment with your thoughts, tips, advice and stories.