how to get my cash back on this deal?

9 Replies

I am looking at a property that I think I can get for $135K and its should appraise around $170K. I was thinking of going in with the 20% dp (Mortgage would be for $108K) and purchasing it. I would then do a cash out refi at 80% ltv  fixed to get back some of my cash. Property would still cash-flow well. 

Is a LOC a better option? I am trying to avoid silly fees but dont want to leave my dp into the deal. I also don't want to run the risk that the interest on the LOC will skyrocket.

Any advice? 

One important piece that was left out. What are you planning to spend on the rehab? I assume that is needed?  

You are wanting to BRRRR this property? Rehab it and rent it out and then do the cash out refi to pull money out? Yes?

How large of a LOC can you get? Have you spoken to lenders at all?

New septic will be installed by the seller. The first unit needs paint and flooring and the rent will be increased. The other unit will need cosmetic as well an is vacant so it also will need to be rented. All in I would say 35-40K- (10K of that being my investment).

I am trying to BRRR but I am realistic that I wont get all my cash out.

First, one thing I see over and over on here from people that have done this for a long time.... Don't use future, assumed rents to run your analysis. By that I mean, don't think "Oh, I will raise rents by maybe... $100/month to 700/month" and then use that 700 as your number. Use the rates at which they have already been successfully rented when doing your analysis.  If you are able to make the deal work with those numbers, awesome. Then, when you hopefully are able to raise rents (never guaranteed to work) that is just icing on the cake!  I only say all that because you said "rent will be increased".

So you are looking at maybe $70k into the deal in your own cash? Or are you looking at lending that incorporates the rehab costs?

@Brian H. I’m a realtor so I know what the rents it’s at now is low and it still cash flows either way. I do agree that banning on futures isn’t a safe to base an analysis on. 

As for the numbers:

I will have about 27k in as a down payment and 10k as my rehab. The septic update is made by the seller 30k. 

Mortgage loan -108k

Down payment is- 27K

Rehab is 10k 

Closing costs 5k

Total is 150K

Arv is 170k. 

I plan on getting 80% ltv so I would get back 136k  so I'd leave about 14K in the deal.

@Rigo V. Got it. I missed that last line about the 10k on the last post. The one last piece to be careful of (which I'm sure you know as an agent) is the property not appraising at 170k when you go to refinance. Also, one other thing I have heard time and again in regards to BRRRR is people having a short term loan like hard.money or.something with a maybe 12 month term with the plan to cashout refi at the 12 month mark. They go in at say month 10 and start working on that and suddenly are running into issues finding a lender that will refi that property and are running out of time with the short term loan. Go ahead and start talking to those lenders now!

@Brian H. yes I have! I start the prelim convo but I think I'll need to get more hard numbers and actual commitment. Thanks for sense checking my thought process.  Its really appreciated. 

A lot of it depends on how large a LOC you can get. And would it be on this property or another one you own?

You may also want to consider getting a private loan up front, which would avoid all the loan fees and you could get more of the property financed. Of course, you would need to know someone who could lend to you (I'm not talking about hardmoney lenders who are generally too expensive).

@Rigo V.

For a conventional investment multi-family property purchase is 75% LTV. ($135k purchase is $101,250 financed) A cash out refinance prior to 6 months is limited to the purchase price plus closing costs ($140k according to your estimates max prior to 6 months) A cash out refinance is only 70% LTV for a conventional multi-family investment property. ($170k estimated value @ 70% is $119k) So you could do delayed financing or a cash out refinance to pull out estimated $18k in equity, but I am not sure it would be worth the cost of a refinance.

If you less than 4 financed properties, there may be a renovation option for you to finance the renovation of the property - requiring less money out of pocket. 

slim numbers. BRRRR I just completed I pulled out all mine and then some.

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