Bummed out about BRRRR in Baltimore, Maryland

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Bummed out about BRRRR in Baltimore, Maryland

Michael Washington
Investor · Baltimore, MD · Member since 2013 · 19 posts · 4 votes

I just finished my first flip here in Baltimore and it was an AWESOME experience. I bought the property for $31k, put in $65 had the work done in two months and a tenant signed up before the job was complete. It was appraised for $140,000. I "thought" I would be able to do a cash-out refinance at 80% LTV based on a local bank who said that they could do this back in 2016.

Lo and behold the board changed their tune and now I can only get 75% of PURCHASE AND CONSTRUCTION cost!!! Not LTV!!!! And they want $30k minimum in equity to boot if held for less than 2 years. This is the same story for multiple banks I have reached out to if the house is owned in an LLC, which is the case for me.

Needless to say, my first BRRRR endeavor is not going well.

To my BP community in Baltimore (or elsewhere), I have a few questions that would help me (and others):

1. What are your thoughts on changing the ownership from an LLC to my personal name to get the cash-out refinance? Any suggested strategies?

2. I am really looking for a financial partner (i.e. bank) who has NO problem doing a cash-out refinance at no lower than 75% LTV with a standard 30 year loan. Is there one you recommend?

3. Has anyone else experienced this? Is it due to a change in the market? How have you gotten around this to execute your BRRRR strategy?

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Ned CareyPro Member
Moderator
Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes
9y

@Michael Washington "Lenders are Liars" OK not true in all cases but like in any endeavor there are those that will over promise when they are not sure they can deliver just to get the business.

Many lenders change terms over time. This can happen for many reasons including bank regulators putting pressure on. The fact is you can get  refinancing now. 2-3 years ago there was NONE to be had at any terms. 

It is typical for investment /commercial loans to be at 75% LTV. And until a property has been "Seasoned" for 1 or even two years, lenders don't want to give cash out. These terms are what you should expect and if you can do better great.

The trick is to keep in contact with many lenders and keep trying until you find one that will do want you want. Small local banks are going to be your best be. I wouldn't waist my time walking into Bank of America or Well Fargo for example.  There are numerous banks in the Baltimore region with 1-10 branches. that is the kind of lender to look for.

It will always be harder to finance in an LLC. Some buy or transfer to personal name then transfer back to the LLC. You have risk of the loan being called because of Due on Sale clause and you will likely loose your title insurance unless you buy a new policy.

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  • Sean Tagge
    Investor · Lehi, UT · Member since 2015 · 435 posts · 300 votes
    9y

    4. you could always get an equity partner/ private money lender to buy our you equity and you give him a fixed return at like 4-8%annualized. get some guy who has like 100k in the bank making him 0% on his money and offer him 4%. 

    2Reply
  • Michael Washington
    OP
    Investor · Baltimore, MD · Member since 2013 · 19 posts · 4 votes
    9y

    That's a really great and clever idea!

    0Reply
  • Account Closed
    Investor · Baltimore, MD · Member since 2015 · 123 posts · 38 votes
    9y

    Good point made by @Sean Tagge it may be alittle difficult to do being as the the low return for not much giving. But however in some cases %4 is better then 0.

    @Michael Washington The Great thing about the Brrrr method is that in the worst case scenario you could always turn it into a rental property if you can not refinance or get a buyer to match your price. It all depends on your situation. If you need fast cash for your flip then it may not sound to pleasant. But there is always a bright side to every dark moment. You will be fine. Keep at it!      

    0Reply
  • Billie Jo
    Rental Property Investor · Union City, PA · Member since 2015 · 37 posts · 10 votes
    9y

    Keep looking for a county or local bank or credit union.... you should be able to find one! Perhaps when you call you could ask for their commercial loan officer or their main branch phone #.  Good luck!

    1Reply
  • Ned CareyPro Member
    Moderator
    Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes
    9y

    @Michael Washington "Lenders are Liars" OK not true in all cases but like in any endeavor there are those that will over promise when they are not sure they can deliver just to get the business.

    Many lenders change terms over time. This can happen for many reasons including bank regulators putting pressure on. The fact is you can get  refinancing now. 2-3 years ago there was NONE to be had at any terms. 

    It is typical for investment /commercial loans to be at 75% LTV. And until a property has been "Seasoned" for 1 or even two years, lenders don't want to give cash out. These terms are what you should expect and if you can do better great.

    The trick is to keep in contact with many lenders and keep trying until you find one that will do want you want. Small local banks are going to be your best be. I wouldn't waist my time walking into Bank of America or Well Fargo for example.  There are numerous banks in the Baltimore region with 1-10 branches. that is the kind of lender to look for.

    It will always be harder to finance in an LLC. Some buy or transfer to personal name then transfer back to the LLC. You have risk of the loan being called because of Due on Sale clause and you will likely loose your title insurance unless you buy a new policy.

    6Reply
  • Aaron Cullen
    Real Estate Broker · Portland, OR · Member since 2015 · 201 posts · 98 votes
    9y
    I buy in my personal name to be able to cash out refi in 6mo from purchase at 70%LTV 30yr 4.5% Then if you want to put in an LLC or keep in your personal name and get an umbrella policy.
    3Reply
  • Lee S.
    Northern, CA · Member since 2014 · 674 posts · 444 votes
    9y

    personal name with umbrella policy.

    0Reply
  • Sam Frank
    Contractor · Baltimore, MD · Member since 2017 · 32 posts · 18 votes
    9y

    @Michael Washington have you tried Harbor Bank? 

    I have not used them personally, but as far as local credit unions they have a good track record of helping people get their businesses off the ground, especially in the African American community in Baltimore.

    3Reply
  • Christos Philippou
    Wilmington, DE · Member since 2016 · 116 posts · 59 votes
    9y

    I am in the middle of doing a cash-out-refinance of a paid off property I have with Quicken Loans actually.

    I'm not asking for 70%+, just need a smaller amount so it's whatever. But I just locked in a 4.75% rate for 30 years which seems pretty legit to me off an investment property 

    0Reply
  • Jassem A.
    Investor · PA · Member since 2013 · 1k+ posts · 602 votes
    9y

    Contact some other local banks and credit unions along with some larger banks. I doubt they will all be this tight.  Some banks will only allocate a certain amount for these types of investments and have their own set of additional criteria.  I had a similar situation where I purchased a property for 26k and the bank would only lend 75k even though appraisal came in at 160k. I think it's more common in markets where properties are selling at such steep discounts. Lender doesn't want to be upside down.

    0Reply
  • David Zheng
    Investor · Saint Louis, MO · Member since 2016 · 970 posts · 1k+ votes
    9y

    call as many local banks as you can. That's what I did with mine. Literally google "mortgage Baltimore" and start at the top

    2Reply
  • Bart Modzelewski
    Contractor · Middle River, MD · Member since 2016 · 28 posts · 5 votes
    9y
    Originally posted by :

    It is typical for investment /commercial loans to be at 75% LTV. And until a property has been "Seasoned" for 1 or even two years, lenders don't want to give cash out. These terms are what you should expect and if you can do better great.

    0Reply
  • Eric H.
    Royal Oak, MI · Member since 2017 · 10 posts · 2 votes
    9y

    Lots of Banks and credit unions that have lax standards, just have to call around

    0Reply
  • Andrea McCants
    Investor · Catonsville, MD · Member since 2016 · 10 posts · 1 vote
    9y

    Can I ask what bank you're using? Have had difficulties finding a bank to do a mortgage on an LLC.

    Thanks,

    0Reply
  • Todd Douglas
    Realtor · Detroit, MI · Member since 2017 · 184 posts · 33 votes
    9y

    @Michael Washington Hello, how. Is the market in MD? My company has a package of property there and I'm surprised we haven't moved them all by now. 

    0Reply
  • Michael Washington
    OP
    Investor · Baltimore, MD · Member since 2013 · 19 posts · 4 votes
    9y

    All - These are great suggestions. Thanks for the input. 

    0Reply
  • Account Closed
    Insurance Agent · Member since 2015 · 191 posts · 124 votes
    9y

    @Michael Washington The first step in this process is taking an honest look at whether or not the appraised value reflects the true market value. If so you could sell the property for a $46,000 gain giving you double the cash you could get from an 80% LTV loan.

    Switching the title from an LLC to your personal name does not effect the terms of a commercial loan that you have personally guaranteed in most situations. However, it does open the door to the possibility of getting a personal loan. Personal loans are almost entirely based off of the income you generate in your day job and your net worth. If you have income from your day job to support the debt service you wont have a problem. If you don't then your probably better off with a commercial loan where the economics of the deal are more strongly considered.

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    0Reply
  • Maurice Bunn
    Investor · Gaithersburg, MD · Member since 2015 · 40 posts · 8 votes
    9y

    I've learned a ton by just reading the comments here! Thanks for sharing!! 

    0Reply
  • Alice Dymally
    Investor · Owings Mills, MD · Member since 2017 · 20 posts · 3 votes
    7y

    Hi Michael! I'm planning on a BRRRR in the Baltimore area. Have you found any lenders you like? Thanks in advance! @Michael Washington

    0Reply
  • Justin Frank
    Rental Property Investor · Tacoma, WA · Member since 2018 · 244 posts · 140 votes
    7y

    @Michael Washington

    I have run into the same problem as you. Financing all of your money out or extra cash out of a BRRRR is not as easy as the books and podcasts make it sound. I bought a home for $95k cash, put $10k into rehab and the home appraised at $150k. Because it is an investment property the bank will loan up to 75% of property value or 100% of what I paid for the house, whichever is lower. So for the first 6 months to 1 year the most I can pull out of the house is the original $95k I purchased it for. I will only have $10k into the home so so it's hard to be upset about. However, I did have the plan of financing all money out including my rehab costs. I went round and round with several banks giving them many scenarios to think about and nothing seemed to work. They state it is too risky for them to loan any higher than what I purchased the house for which is goofy because they would gladly give a first time home buyer a 97% fha loan, or a 80% conventional loan. You learn and you go and sometimes it's a pain in the butt

    1Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    7y
    Originally posted by @Justin Frank:

    @Michael Washington

    I have run into the same problem as you. Financing all of your money out or extra cash out of a BRRRR is not as easy as the books and podcasts make it sound. I bought a home for $95k cash, put $10k into rehab and the home appraised at $150k. Because it is an investment property the bank will loan up to 75% of property value or 100% of what I paid for the house, whichever is lower. So for the first 6 months to 1 year the most I can pull out of the house is the original $95k I purchased it for. I will only have $10k into the home so so it's hard to be upset about. However, I did have the plan of financing all money out including my rehab costs. I went round and round with several banks giving them many scenarios to think about and nothing seemed to work. They state it is too risky for them to loan any higher than what I purchased the house for which is goofy because they would gladly give a first time home buyer a 97% fha loan, or a 80% conventional loan. You learn and you go and sometimes it's a pain in the butt

    different loan programs those are owner occ with PMI.. your an investor.. investors need skin in the game.. look were the no skin in the game got us 10 years ago.. investors walked in droves when they had nothing at risk.. ( that's how the banks look at it.) BRRRR is great in theory its a guide line its not an absolute..

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