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

11 Replies

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!

@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.

1(506) 471-4126

@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. 

@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.

1(506) 471-4126

@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 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.

1(506) 471-4126

@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? 

Hi Carol,

You did not mention in original post you were using self directed funds.

Typically yes that is a 40% down or more loan and you need non-recourse. It's been awhile but I think it has to be 100% non-recourse. You need to check with an IRA company. So in that case you could not even do a partial recourse loan where only 50% is recourse and the other 50% is not.

See if a lender would do interest only the first few years of the loan while you stabilize. Some loans can look like 7 year term with 25 year amortization around 4's or 5's in interest rate fixed and first 2 years of loan is interest only. Interest only helps the cash flow while stabilizing with low payments.

Banks love crappy short amortizations and low ltv's because it curbs risk.

This is not legal advice and I have limited experience with IRA based loan but maybe you could do a hybrid. Get to 60% ltv but have seller carry back 15% of 40% needed down payment as a non-recourse loan OR put some down and have seller do full owner finance with a non-recourse loan. That way you might get much better terms than the bank will offer on an IRA type loan.

Again I have not tried that with an IRA type loan and do not have the experience with them if it is allowed or not.

No legal advice given. 

@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 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. 

@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.  

Join the Largest Real Estate Investing Community

Basic membership is free, forever.