When to refinance using brrrr

Question

I’m using the brrrr strategy when should I refinance before or after I rent out the property. If after I rent it out will the appraiser have to come in the property with the tenant there

Daniel Kramer · Answer

@Jason Mayers

I just searched this exact question and this was the thread that showed up. I am in the middle of a renovation, not sure when the most advantagous time is to refinance. I understand the rent for the sake of qualifying income for DTI. If that is not a problem, does the rent help to justify a higher appraisal via an income method of appraisal? I've seen appraisals of single family home where both a comp method and income method are used in combination.

Follow up question - do they accept that rent as income on day 1 of the lease or does it need to exist for a couple months before they accept it as a realistic rental rate?

Thanks,

Dan

Albert Bui · Answer

For BRRR it depends if you have enough income with out the tenants rental income factored in or not. If you have sufficient income to qualify for the property with out a tenant then you have the freedom to refinance before or after the tenant. However, not everyone has this luxury so some folks need to secure a lease agreement + a copy of the security deposit first before they can meet the qualifications of the lending programs (most notably the debt to income or DTI ratios).

Will the appraiser need to come out? Yes for interior and exterior inspection in most cases.

Matt Pastier · Answer

@Jason Mayers Most banks are going to make you wait 6 months if you want to cash out based on ARV. You should definitely rent it out and get cash flow while you wait.

Tam Nguyen · Answer

When looking for a preapproval for refinancing, does one need to have a subject property selected and presented to lender? The reason this question comes up is because when a great BRRRR opportunity presents itself, if one have to get preapproval from the refinancing lender and the hard money lender, that would slow down the process and someone else could snatch the deal up. Can anyone chime in on this?

Michael Glaspie · Answer

Ask the lender their criteria. If you can pull out immediately then go for it.

Andrew Postell · Answer

@Jason Mayers I would say this will depend on what your prequalification states. You should get prequalified before you purchase a property both with your acquisition lender and your permanent financing lender.  It should be free to do and this will tell you things like rates, conditions, payments.....and if you even need rental income to qualify.  If you don't need it to qualify...then refinance right away.  If you do need that rent income, then get it rented.  Hope this helps!

Stephanie Medellin · Answer

@Jason Mayers  If you need the rental income to qualify, you will need to have a lease in place.  Always have the tenant pay the rent and security deposit by check and deposit it in your account to document payment.  You will need this for your loan.

Albert Bui · Answer

If you're concerned with this then get pre-approved or better yet fully underwritten for a TBD (to be determined) address ahead of time. This way when you really need to refinance you'll know your credit, income, assets are in line and prepared in advance of the need.  This is what the intelligent investors do, they'll even have multiple refi exit strategies as well to make sure their income/credit/assets qualify (extra cash reserves, payoff car as an option, payoff debt as an option, co-borrower as an option, etc).

Jerry Padilla · Answer

@Tam Nguyen

You would look to get a pre-approval from a lender when it is time to refinance the property. A pre-approval is only good for 90 days for a conventional lender.

If you initially use financing, than you will have to wait until 6 months months to cash out.

If you are just looking to refinance out of the hard money and not cash out, there is no seasoning period.

Kenneth Garrett · Answer

@Jason Mayers

To follow the BRRRR strategy you will place a tenant in the property and then refinance it.  If you are using a LLC then you will need to acquire commercial lending which is based on the cash flow of the property.  The lender will want a copy of the lease, Articles of Organization, EIN Number and  Operating Agreement.   Your DSCR (Debt Service Coverage Ratio) will need to be 1.25 or better.  If your numbers are closer to 1.75 or better you can probably can get 80% LTV.  Interest rate will be higher than residential, but that's the down side of commercial loans and asset protection.

Good Luck.

When to refinance using brrrr

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