Cash Out Refi/BRRRR with Conventional Mortgage

8 Replies

Hello BP! I have a question regarding the BRRRR/Cash Out Refi method. I understand that most investors using the BRRRR method are buying the properties with cash. However, I was wondering if it is possible to use this method with a conventional loan? I realise that most lenders will do a cash out refinance on a LTV of 70%. If I purchased a property (currently analysing one) for $75,000 with 25% down (loan amount around $56,000) and the ARV came in at $110,000 could I pull out the difference? Any help on this would be much appreciated! Thank you!

@Joshua Davies the BRRRR isn't exclusive to buying with cash only. You can get some sort of initial financing (private money, Hard Money, commercial loan, conventional, etc..) then do a refinance to pull out cash.

In your specific scenario, you could buy the property at $75,000, fix/renovate, place tenants or occupy, then refinance at the ARV of $110,000. At a 70% LTV, that gives you a new loan of $77k, so you would essentially get all your cash back. Keep in mind most lenders like there to be 6 months seasoning before a cash out refi. Also be prepared to justify why the house is worth so much more in a short period of time. I found underwriters can be picky at times, so having before and after pictures and a detail list of work done can help.

Thank your your reply Andrew! So am I right in thinking the below:

Purchase price: $80,000

Original loan: $54,000

Rehab: $10,000

ARV: $110,000

Refinance: 70% of $110,000 = $77,000

$77,000-$54,000 = $23,000

Could I pull out $23,000 from this refinance? Or am I missing something?

I am only trying to pull out enough cash to put a down payment on another property.

Thanks for your help!

You can do it with a conventional loan, but it would require two loans and therefore two sets of loan costs because banks will never lend at appraised value up front. They will only lend on the cost you are buying for plus a percent of the rehab costs. We get private loans up front (and don't offer any points or have to pay for appraisals and the like) so the loan costs are cheap. Then refinance with a bank when the property has seasoned. 

@Joshua Davies , "Could I pull out $23,000 from this refinance?" Yes.

But the problem is: The property would owe you $36k ($26k deposit; $10k rehab)!

So in that scenario, you'd still be out of pocket $13k, right?

ie. You should be trying to be all-in at no more than 70% ARV. All the best...

@Joshua Davies Yes, you are thinking correctly about how the BRRRR Strategy works. As for the details, it all depends on the bank that you are trying to get your refinance through. If you have a good relationship with the bank, they might give you better terms. For example, we buy the property with hard money, rehab it with private lenders, and then we have a local bank that lends up to 75% of the appraised value without seasoning at which time we pay off the private lenders and the hard money lenders. This has enabled us to get several properties this year without having much of our own money into the properties.

Howdy @Joshua Davies

Do you really expect to force the value of the property to go up $30K (From $80K to $110K) with a $10K Rehab?  That is cosmetic costs for me.  You also will not be able to pull $23K out based on your numbers (and those you left out).

You numbers are off.

Purchase Price $80,000

25% Down payment is $20,000

Loan amount should be $60,000 (Not $54,000)

Rehab $10,000

ARV $110,000

Refi 70% LTV = $77,000

Holding Costs ?? (Not provided)

Closing Costs ?? (Not provided) 2 closings

Even without the Holding/Closing costs you will not be able to pull the same amount of Down payment cash out ($77,000 - $60,000 = $17,000).  Not $23,000!

Thank you for your input everybody, much appreciated! I don't necessarily mind still having money into the deal, I was just looking to pull out enough cash to use as a down payment for my next purchase. I currently have enough cash for 2 purchases and just figuring out my best strategy. I am also looking into HELOC's and how they could benefit my situation.

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