Question About BRRRR

[Matthew John]

Hey guys - I'm in the process of finding my first deal & confused a bit by the numbers. 

Let's use this example....

I buy a house for 140k that needs about 10k worth of work. I spend 150k total. 

My monthly mortgage is $900. 

I fix up the house, get it rented for $1500/m and I'm starting to cash flow. 

Now I want to move onto the Refinance part to pull out some equity and move onto property #2. 

The house now appraises for 200k and they give me back 50k during the cash out refinance. 

Here's where I have some questions...

1) Does my mortgage payment now increase from the original $900 since it's now worth more?

2) Should I be calculating my numbers off the ARV value?

Thanks for the help!

[Andrew Postell]

@Matthew John if you were to find a bank that could lend 100% of the Value that would be pretty amazing! Most will lend about 75% of the ARV. There are differences to that number depending on the loan type, property type, etc.

1. Does my mortgage payment increase - this will also depend on what type of loan you used to acquire the property.  Sometimes a seller needs to close very quickly.  And that might mean you need a loan type that can close quickly too.  Those loan types usually carry a higher rate (there's always an exception but 99% of the time this is the case).  So when you refinance, usually into a loan that takes longer to close, the rate is lower which makes your payment lower too.
2. You should absolutely be calculating your numbers off the ARV rule. AND you should only be working with banks that do the same!

Here's some quick questions to ask your lender when the time comes:

1. When do you start using rental income to help me qualify? (the answer needs to be immediately)
2. How long do you need me to be on title to refinance? (this is important if you do need a short term loan to purchase then refinance out - and the answer should be 1 day...very important that it is 1 day on title is all that is needed to refinance)
3. What is my minimum down payment required? (not so important but if they only require 15% down on a single family home that is usually a good sign that you are working with a flexible lender)
4. Can I change title to my LLC?
5. Do you sell your mortgages?
6. Can you explain to me what your reserve requirements are?

Hope this helps!