Hello, I'm a new investor and I want to try to understand the brrrr strategy better. I understand getting financing to purchase, rehab, rent, but refinance. Now this is where it gets a little blurry for me because I don't quite fully understand the refinancing portion. So, I try to get it refinanced does the bank offer 70% of the ARV if it's owner financing or do I need to pull a loan from someone? Do they just give you the whole ARV with the conventional loan and you use it to payoff what you owe for the property and use the rest on a new property?
The reason I ask is because I found a property with a person I am on very good terms with. The property has been vacant for several years. It is a single wide trailer in good condition with not too many repairs needed and upgrades can be done. I plan on offering $10,000 and it's on a 1 acre lot in a small town. I just wanted to clarify this strategy before discussing this opportunity with the owner. Would this be a good way to purchase the property? If not how else should I approach this? Sorry if it seems stupid that I ask but I appreciate all help that is given.
The concept behind the refinance portion is that because you have repaired the property, you have now added value. If you think the property is more or less worth 10k now and you can add 1k in rehab and then value the property at a total of 12k, the bank's new assessed value will be from the 12k value. The concept is to pull money out with the purpose of putting it in your pocket to repeat the process. I'm not 100% sure how this might work on a trailer, so I might do more research there. It's a great system especially if you can do the right remodel (not over remodel) and the bank will support your efforts.
Best of Luck!!!
The BRRRR strategy is NOT for Trailers on vacant land, and NOT for properties with an ARV less than ~$75k.
The reason? Rule-of-thumb: Lenders won't let you Refinance for a smaller mortgage than $50k.
Which means, if you want $75k ARV cheapies, your all-in cost must be no more than $50k to begin with.
Action #1: Start talking to LENDERS about your plan, before even looking for deals!
Your proposed purchase may well be a smokin' deal, but, don't confuse it with a BRRRR strategy. My 2c...
@Kristina Heimstaedt @Nicole Frawley @Brent Coombs
I can't seem to tag Brent but Thank you all for the information I definitely learned more about the refinancing portion that I definitely did not know. I figured there would be a minimum amount to spend in order to be able to refinance. Not being able to pull loans on mobile homes definitely makes sense now since they don't quite appreciate.
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