BRRRR - Refinance Transition from HML to Bank

[Mike Russ]

Hi Everyone - I closed on my first multi-family deal this week and I am working on two additional leads in the Dayton, OH area. I potentially have more deals than capital and need some insight into using the BRRRR approach, specifically on the refinance piece. I am confident that I can find a hard money lender to fund my initial purchases but I am confused on how to transition out from the HML to the refinance part. Will a bank give me a loan for 75% of the appraised value if I don't have the initial loan with them since I went the HML route?

Example

-Purchase Duplex for $75k and complete $15k of rehab.

-ARV = $135,000

-75% LTV Ratio: $101,250

-Payoff my HML ~5,000

This is where I am confused.... Do I ask the bank for a  loan at this point, if so how do I get money out of this?  I cant technically refi a loan that I do not have, correct?  

Sorry I am really confused here, any help would be much appreciate.  I am going the conventional 25% approach on the deal I closed this week but I want to keep doing deals with limited capital so I need to figure this out.

Thanks,

Mike

[Michael Noto]

This is a very common way a BRRRR deal is done. So far you have purchased it with hard money, and before you refinance it is recommended that you complete the rehab and rent it out so it is performing and in the best possible shape condition wise for the refinance.

Theoretically if the home is rented for top of the market rent and most if not all of the deferred maintenance has been addressed then your refinance appraisal has a better chance of coming in where you need it to as long as your projected ARV was accurate.

As far as the timing of the refinance goes, a lot of that is dictated by the lender you refinance with. You want to find out how long the bank requires you to own the property before you can do a cash out refinance based on the homes new appraised value. These are called “seasoning requirements”.

Remember, it is the appraised value, not the assessed value that you want the refinance based on.