Can you refinance a non-recourse loan using BRRR strategy?

Question

Hello!

I'm Carol, need your professional expertise to answer a question using the BRRR strategy in a 25 unit property to purchase. Property to be purchased using a non-recourse loan 40% down-60% financed with 15% in reserves. Can I use the BRRR strategy to refinance with this type of loan?

Thank you!

Tom Keating · Answer

@Carol Bloom If you're looking to purchase a stabilized multifamily property which would attract a loan amount greater than $1mm and you're looking to secure a Non-Recourse loan with interest only capabilities then the Freddie Mac Small Balance Loan is a perfect fit and your best bet for this one.  This program only requires 20%-25% down, with fixed rate terms up to 10-years and 30-year amortizations with up to 3-years of interest only.  If you would like to discuss this option further feel free to PM me.

Carol Bloom · Answer

@Tom Keating Freddie Mac Small Balance Loan sounds like exactly what I'm looking for. I'll send a PM. Thank you for replying to my post.

Joel Owens · Answer

Typically if this is a turn around play try to put less down payment so you have more for reserves to stabilize and get an interest only loan with no pre-payment penalty. Then once stabilized convert to a permanent loan with the more basic terms.

Roy N. · Answer

@Carol Bloom suggested would be a better way to go if you can make it happen.  A miss on my part not to mention it before ... that's why this area is Joel's wheelhouse.

We have used a commercial broker, we've also had residential real estate agents bring us 10+ unit buildings (not always a good experience).   The inventory is small enough in our home market that we know the existing owners and have approached them directly.

Roy N. · Answer

@Carol Bloom

If your financing is non-recourse, chances are the LTV will be lower as the lender will want a bigger safety margin  on the performance of the business.

We tend to buy rather neglected properties, update the property and overhaul the business.  If you have a good rapport with the lender and a proved track record, then you should be able to arrange financing with a portion similar to a construction draw which will become available to you once you finish rehab and hit your performance objectives.

Roy N. · Answer

@Carol Bloom

BRRR is just a new acronym for an old practice.

If you can acquire the business for less than its intrinsic value {say it's being poorly managed} and improve its cashflow through a combination of increased/new revenues and reduced operating expenses sufficiently, then you should be able to refinance afterwards.

I would have this dialogue upfront with any candidate lenders to be certain you are on the same page and you have financing correctly structured to fit your situation.

Carol Bloom · Answer

@Joel Owens greatly appreciate your creativeness on ways to finance a property using a self-directed non-recourse loan. I will check with the IRA company on options. Thank you!

Carol Bloom · Answer

@Roy N. and @Joel Owens it would be great if I could get an interest only loan using my self-directed but I had thought I could only use a non-recourse loan. Joel can you shed more light please?

Carol Bloom · Answer

@Joel Owens

With non-recourse loans I have only found one lender so far from BP, the requirement is 40% down and will only wrap 10% for rehab into the loan because he doesn't want a fixer, who do you know that offers non-recourse loans?

My thought is what @Roy N. N. is suggesting, purchase a property that has been neglected and poorly managed and turn-it-around then refinance to repeat.

I have to use a non-recourse loan because the down payment is coming from my self-directed IRA acct.

@Roy N. are you using a commercial broker to find the properties 10+ units?

Carol Bloom · Answer

@Roy N. thank you for your reply. It seems there are special rules that come with a non-recourse loans vs a traditional commercial loan. Your point about clarifying upfront with the lender what my intent is will be best to figure out how to structure the deal.

Can you refinance a non-recourse loan using BRRR strategy?

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