POTENTIAL OBSTACLES OF BRRRR

33 Replies

What are potential obstacles when trying to BRRRR? For example:

1. Are there cases when you can't refinance ?

2. If you buy the property in cash can you refinance?

3. Do you have to have a W2 job to refinance?  Do you have to make a certain amount from your job or business to refinance?

4. Can you always pull out 75% of appraised value in cash? Are there cases when you can't pull out the full 75%?

5. Does your yearly income and wages affect how much you can pull out from the refinancing ?

6. How soon after purchase and rehab can you refinance and pull out cash?

Originally posted by @Jason Ma:

What are potential obstacles when trying to BRRRR? For example:

1. Are there cases when you can't refinance ?   

2. If you buy the property in cash can you refinance?

3. Do you have to have a W2 job to refinance?  Do you have to make a certain amount from your job or business to refinance?

4. Can you always pull out 75% of appraised value in cash? Are there cases when you can't pull out the full 75%?

5. Does your yearly income and wages affect how much you can pull out from the refinancing ?

6. How soon after purchase and rehab can you refinance and pull out cash?

 Answers:

1 - Yes.  There are limits in number of loans, and loan ratios that still must be followed.

2 - Yes, but that is considered a "complete cash out refi".  That means you would need to wait 6 months from closing.

3 - a) If the loan is in your personal name, then yes.  b) Yes

4 - a) No, b) Yes...and the amount (%) a lender allows isn't always 75%.

5 - Yes

6 - 6 months

Originally posted by @Joe Villeneuve :
Originally posted by @Jason Ma:

What are potential obstacles when trying to BRRRR? For example:

1. Are there cases when you can't refinance ?   

2. If you buy the property in cash can you refinance?

3. Do you have to have a W2 job to refinance?  Do you have to make a certain amount from your job or business to refinance?

4. Can you always pull out 75% of appraised value in cash? Are there cases when you can't pull out the full 75%?

5. Does your yearly income and wages affect how much you can pull out from the refinancing ?

6. How soon after purchase and rehab can you refinance and pull out cash?

 Answers:

1 - Yes.  There are limits in number of loans, and loan ratios that still must be followed.

2 - Yes, but that is considered a "complete cash out refi".  That means you would need to wait 6 months from closing.

3 - a) If the loan is in your personal name, then yes.  b) Yes

4 - a) No, b) Yes...and the amount (%) a lender allows isn't always 75%.

5 - Yes

6 - 6 months

Thank you. 

1. So I know it's a case to case basis but how much do you have to make from your W2 job to be approved for 75% of appraised value?'

2. How long do you have to be working at a new job to be approved to refinance and take out 75% loan?

  3. What ratios do they look at when approving loan?

Originally posted by @Jason Ma:
Originally posted by @Joe Villeneuve:
Originally posted by @Jason Ma:

What are potential obstacles when trying to BRRRR? For example:

1. Are there cases when you can't refinance ?   

2. If you buy the property in cash can you refinance?

3. Do you have to have a W2 job to refinance?  Do you have to make a certain amount from your job or business to refinance?

4. Can you always pull out 75% of appraised value in cash? Are there cases when you can't pull out the full 75%?

5. Does your yearly income and wages affect how much you can pull out from the refinancing ?

6. How soon after purchase and rehab can you refinance and pull out cash?

 Answers:

1 - Yes.  There are limits in number of loans, and loan ratios that still must be followed.

2 - Yes, but that is considered a "complete cash out refi".  That means you would need to wait 6 months from closing.

3 - a) If the loan is in your personal name, then yes.  b) Yes

4 - a) No, b) Yes...and the amount (%) a lender allows isn't always 75%.

5 - Yes

6 - 6 months

Thank you. 

1. So I know it's a case to case basis but how much do you have to make from your W2 job to be approved for 75% of appraised value?'

2. How long do you have to be working at a new job to be approved to refinance and take out 75% loan?

  3. What ratios do they look at when approving loan?

 All of that depends on the specific loan program, from the specific bank you are standing in front of at the time.

You answered your own question right from the start.

Originally posted by @Jason Ma:

What are potential obstacles when trying to BRRRR? For example:

1. Are there cases when you can't refinance ?

2. If you buy the property in cash can you refinance?

3. Do you have to have a W2 job to refinance?  Do you have to make a certain amount from your job or business to refinance?

4. Can you always pull out 75% of appraised value in cash? Are there cases when you can't pull out the full 75%?

5. Does your yearly income and wages affect how much you can pull out from the refinancing ?

6. How soon after purchase and rehab can you refinance and pull out cash?

1. yes, all the time. Talk to your lender about the refi BEFORE YOU PURCHASE the house to ensure your debt strategy will work

2. yes

3. you'll need to have some stabile way to prove repayment. You're lender can confirm you meet requirements for refi

4. 75% is fannie mae guidelines for investment property. It's a very common LTV, but it's definitely not always

5. yes, the bank is going to look at your capacity to repay as a function of what's on your tax returns

6. 6 month seasoning is standard but can be much faster if you use delayed finance (which can be complicated). I do a full BRRRR flip in ~9 weeks

Originally posted by @Joe Villeneuve :
Originally posted by @Jason Ma:
Originally posted by @Joe Villeneuve:
Originally posted by @Jason Ma:

What are potential obstacles when trying to BRRRR? For example:

1. Are there cases when you can't refinance ?   

2. If you buy the property in cash can you refinance?

3. Do you have to have a W2 job to refinance?  Do you have to make a certain amount from your job or business to refinance?

4. Can you always pull out 75% of appraised value in cash? Are there cases when you can't pull out the full 75%?

5. Does your yearly income and wages affect how much you can pull out from the refinancing ?

6. How soon after purchase and rehab can you refinance and pull out cash?

 Answers:

1 - Yes.  There are limits in number of loans, and loan ratios that still must be followed.

2 - Yes, but that is considered a "complete cash out refi".  That means you would need to wait 6 months from closing.

3 - a) If the loan is in your personal name, then yes.  b) Yes

4 - a) No, b) Yes...and the amount (%) a lender allows isn't always 75%.

5 - Yes

6 - 6 months

Thank you. 

1. So I know it's a case to case basis but how much do you have to make from your W2 job to be approved for 75% of appraised value?'

2. How long do you have to be working at a new job to be approved to refinance and take out 75% loan?

  3. What ratios do they look at when approving loan?

 All of that depends on the specific loan program, from the specific bank you are standing in front of at the time.

You answered your own question right from the start.

 thank you

Originally posted by @Alexander Felice :
Originally posted by @Jason Ma:

What are potential obstacles when trying to BRRRR? For example:

1. Are there cases when you can't refinance ?

2. If you buy the property in cash can you refinance?

3. Do you have to have a W2 job to refinance?  Do you have to make a certain amount from your job or business to refinance?

4. Can you always pull out 75% of appraised value in cash? Are there cases when you can't pull out the full 75%?

5. Does your yearly income and wages affect how much you can pull out from the refinancing ?

6. How soon after purchase and rehab can you refinance and pull out cash?

1. yes, all the time. Talk to your lender about the refi BEFORE YOU PURCHASE the house to ensure your debt strategy will work

2. yes

3. you'll need to have some stabile way to prove repayment. You're lender can confirm you meet requirements for refi

4. 75% is fannie mae guidelines for investment property. It's a very common LTV, but it's definitely not always

5. yes, the bank is going to look at your capacity to repay as a function of what's on your tax returns

6. 6 month seasoning is standard but can be much faster if you use delayed finance (which can be complicated). I do a full BRRRR flip in ~9 weeks

Thank you. This might be a silly question, hypothetically speaking, but assuming your only debt are credit cards (less than a $1,000), your gross salary is just below 40k, but you have a $100k in the bank would you have trouble refinancing assuming the ARV is under $200k?

If yes, what amount of gross salary will I for sure have no problem being approved for refi? For example if I  got my salary up to $100k will I be approved every time (assuming everything else stays the same)?    

@Jason Ma More important than anything with a BRRRR make sure you have a refinance lender lined up before purchase so you know the timetable you will be working with from a seasoning perspective, LTV amount, etc. going into the project.

1) Rarely. There are very few instances when you cant refinance. But, there are many ways that you cant refinance enough

2) Yes, look into delayed financing. There is no cash out, but you can recuperate all of the cash you've spent, with no seasoning. 

3) No. You can find commercial lenders that only look at the asset, without your income.

4) Not always. There are factors that can limit the amount of refinance, such as DSCR. And some lenders wont go to 75%

5) No. See answer 3

6) Fannie mae requires 6 months, but there are portfolio lender that will do it in as soon as 30 days. They generally cost more but they are out there.

Most of my answers are referencing non-conforming type loans, which are more expensive than traditional banks. My point, though, is that there is a way to make it happen, regardless of the circumstances. 

@Matt P. , logically, that is true, but is not always the case in practice. Most traditional lenders will only credit you 75% of gross rents. Even with good cash flowing deals eventually that gap with become more and more narrow. In addition, there are many markets where people buy looking for good appreciation and reasonable cash flow. In a scenario like that, you could be cash flowing just fine on paper, but it would be reflected as negative cash flow in your DTI.

@Corby Goade Good call. I was being a little to general. So far in my limited experience buying for cash and refinancing after I complete the rehab my loan officer has given no indication that I wouldn't be able to finance everything I buy with traditional mortgages until I hit my limit on how many loans I can have. I guess that's why I said good cash flowing rentals. That 75% should be enough to keep your DTI good enough. Good point on different markets too. My experience is limited to the mid west.
Originally posted by @Michael Noto :

@Jason Ma More important than anything with a BRRRR make sure you have a refinance lender lined up before purchase so you know the timetable you will be working with from a seasoning perspective, LTV amount, etc. going into the project.

 Even if you are not going refinance until 6 months-1 year later? What if you're currently

 trying to find a new job while you purchase so you are sure you actually qualify for refi?

Also, if you are a long distance investor does the. lender have to be located in market you are investing in?

Originally posted by @Matt P. :
@Corby Goade Good call. I was being a little to general. So far in my limited experience buying for cash and refinancing after I complete the rehab my loan officer has given no indication that I wouldn't be able to finance everything I buy with traditional mortgages until I hit my limit on how many loans I can have. I guess that's why I said good cash flowing rentals. That 75% should be enough to keep your DTI good enough. Good point on different markets too. My experience is limited to the mid west.

 This is exactly what I want to do (buy with cash, rehab, refi, pull money out). The only difference is this will be my first loan. Did you have trouble refinancing since you're a cash buyer?

Originally posted by @Jason D. :

1) Rarely. There are very few instances when you cant refinance. But, there are many ways that you cant refinance enough

2) Yes, look into delayed financing. There is no cash out, but you can recuperate all of the cash you've spent, with no seasoning. 

3) No. You can find commercial lenders that only look at the asset, without your income.

4) Not always. There are factors that can limit the amount of refinance, such as DSCR. And some lenders wont go to 75%

Thank you. Where can I learn more about  number3? Lenders. that look at asset not income.

5) No. See answer 3

6) Fannie mae requires 6 months, but there are portfolio lender that will do it in as soon as 30 days. They generally cost more but they are out there.

Most of my answers are referencing non-conforming type loans, which are more expensive than traditional banks. My point, though, is that there is a way to make it happen, regardless of the circumstances. 

@Jason Ma the only time I had trouble with the refi was my first property. It had nothing to do with the property though, my loan amount was only 48k so it was tough shopping around to find someone who could write a smaller loan. My other properties that are more expensive have all been smooth refinances that took about 45 days to close. Now that I have a few years of tax returns showing rental income along with my W-2 my lender advises me there will be no issue at all refinancing a new investment property. If I didn't have super low personal expenses this might be tougher though as it sounds like some people run into DTI issues even though they are buying cash flowing deals.
Originally posted by @Corby Goade :

If you are a W2 wage earner, unless you make a good deal of money, the limiting factor will most likely be DTI ratios after a few deals.

so it doesn't matter if you make $30k or $100k as long as your DTI is good? How do you improve DTI starting now?

@Jason Ma many national, and some smaller hard mo e lenders also have 30 year fixed programs. I have a 30 year fixed through finance of America commercial that was strictly asset based. I believe lima one and lending home also have 30 year loans
@Jason Ma One more thing that I think is pretty standard for traditional mortgages is my lender wants to see 6 months of reserves for each mortgage I have plus 6 months reserve for the new mortgage. How this helps. Good luck!
Originally posted by @Matt P. :
@Jason Ma the only time I had trouble with the refi was my first property. It had nothing to do with the property though, my loan amount was only 48k so it was tough shopping around to find someone who could write a smaller loan. My other properties that are more expensive have all been smooth refinances that took about 45 days to close. Now that I have a few years of tax returns showing rental income along with my W-2 my lender advises me there will be no issue at all refinancing a new investment property. If I didn't have super low personal expenses this might be tougher though as it sounds like some people run into DTI issues even though they are buying cash flowing deals.

 So since tis is my first deal and my income is not that big you'd say keep my personal expense down? What other advise would you give?

Originally posted by @Jason D. :
@Jason Ma many national, and some smaller hard mo e lenders also have 30 year fixed programs. I have a 30 year fixed through finance of America commercial that was strictly asset based. I believe lima one and lending home also have 30 year loans

 I'll look into this

@Jason Ma For sure keep your personal expenses down. I also wouldn't open any new credit lines in order to keep my credit score as high as possible. I didn't have a huge income when I pulled my first deal off either as long as you don't have tons of other debt that shouldn't be a problem.
Originally posted by @Jason Ma:
Originally posted by @Alexander Felice:
Originally posted by @Jason Ma:

What are potential obstacles when trying to BRRRR? For example:

1. Are there cases when you can't refinance ?

2. If you buy the property in cash can you refinance?

3. Do you have to have a W2 job to refinance?  Do you have to make a certain amount from your job or business to refinance?

4. Can you always pull out 75% of appraised value in cash? Are there cases when you can't pull out the full 75%?

5. Does your yearly income and wages affect how much you can pull out from the refinancing ?

6. How soon after purchase and rehab can you refinance and pull out cash?

1. yes, all the time. Talk to your lender about the refi BEFORE YOU PURCHASE the house to ensure your debt strategy will work

2. yes

3. you'll need to have some stabile way to prove repayment. You're lender can confirm you meet requirements for refi

4. 75% is fannie mae guidelines for investment property. It's a very common LTV, but it's definitely not always

5. yes, the bank is going to look at your capacity to repay as a function of what's on your tax returns

6. 6 month seasoning is standard but can be much faster if you use delayed finance (which can be complicated). I do a full BRRRR flip in ~9 weeks

Thank you. This might be a silly question, hypothetically speaking, but assuming your only debt are credit cards (less than a $1,000), your gross salary is just below 40k, but you have a $100k in the bank would you have trouble refinancing assuming the ARV is under $200k?

If yes, what amount of gross salary will I for sure have no problem being approved for refi? For example if I  got my salary up to $100k will I be approved every time (assuming everything else stays the same)?    

I thought I'd explain DTI a little further since I don't think anyone else has yet.. I believe most banks don't want you to have any higher than 43% DTI. So all of your fixed debt expenses, including the mortgage you're applying for, should not exceed 43% of your gross monthly income. For example - let's say you earn $4,000 a month before taxes; that means you have $1,720 a month to use towards debt in the banks eyes (4k x .43 = 1,720). Now let's say your car payment is $200, your rent or current mortgage is $500 and you have a personal loan payment of $500 a month. That would leave you about $520 of available income to use towards debt, so you should be able to pay a total of $520 a month towards a home (including taxes, insurance and PMI if applicable. You should be able to count your positive cash flow towards your income, once you have done your first BRRRR and have a tenant and a lease (the bank will probably want to see the lease, my bank is reviewing my leases right now and using them to help approve me for the deal I'm working on)

Disclaimer - I'm not a banker, so someone correct me if I'm wrong! 

I also thought I would mention to keep in mind you typically will need to have about 6 months worth of reserves for each property and as you scale the bank may require more. So if your total payments on each property are $500/month and you have 2 properties, the bank will probably require you to have $6,000 cash in the bank that you're not using. You can usually use retirement accounts, but you must be able to access the funds and the banks will typically count 70% of those funds due to the penalties you pay to withdrawal from 401k's. But as you acquire more properties, you grow your monthly cash flow, which can make it easier to save a little extra money. 

If any of this is discouraging, go talk to your local banks! Start with the small local credit unions, tell them your plans and tell them you want to build a relationship with them. Make sure you know your numbers going in, so you can present some hypothetical deals/situations to them and show them that you know what you're talking about so they can see you're going to be successful and realize that they should want your business. They is always a way to make it happen. If you need hard money to make the deal happen then do what you gotta do, as long as the deal still makes sense. 

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