I hear a lot of investors talking about Buy, Rehab, Rent, Refinance, Repeat to get as many as 100 doors. The number don't make sense and how do you refinance? Here is the math.
See if I am doing this right, Buy a house for $80k, after rehab, it's worth $100k. It's rent's for $800 a month. Cash flow around $300(after all expense), If I can get 30 year loan with 5% interest. Already have 2 house under the belt, so debt to income is already over 50%, how would I go about refinancing this home if I'm already reach my limit in debt to income ratio? If I add in rent income, it would not be enough (because rent income is about $300 and mortgage is about $500 per month (with tax and insurance)), it would increase debt to income ratio).
Please enlighten me on this.
Fannie Mae guidelines are to count 75% of the rent. If this number is greater than PITI this lowers your DTI ratio. If it's less than 75% it increases your debt. Obviously, you want it to be greater than 75%. Of course, at a certain point you would be getting commercial financing, which will depend on that lenders policies.
Howdy @Jack Ni
Your numbers are wrong for the BRRRR strategy. Start with the ARV. Your example: $100,000 ARV for a SFR. A Refinance loan amount of $80,000 (80% LTV). That means your all-in costs (Purchase price, Rehab costs, Holding and Closing costs) should add up to no more than $80,000. So purchasing at $80,000 will not work.
Also trying to get to 100 doors using SFR will take a lot longer. Using small multi family properties (2 - 4 units) will get you there quicker.
I am in the middle of a BRRR right now. Here are my "readers digest version" numbers and explanation:
Property: 3/1.5 SFH
Purchase Price: $59k
Reno budget: $20k (went over a little so will actually end up around $22k)
appraisal: $105k as is
ARV: $125k (estimate per appraiser based on repairs/ reno list provided)
Current Mortgage: $431/ month (20% down on purchase price, 100% finance of repairs 20 year am. with 5 year balloon at 5.25% commercial loan)
Rent estimate: $1050/ month
The commercial lender should let me cash out up to 80% of the after repair appraisal as long as my DSR is above 1.2.
Hope this helps.
Also, with a commercial loan, DSR is more important than DTI.
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