My partner and I are doing our first brrrr. Here’s the numbers
Hard money loan-135k
Signed lease of $1650 per month.
My hard money lender offers two loans that keep the property in the Llc.
Option 1 80% new appraised value 30 year fixed
Option 2 10/1 arm. 5% Interest only for 10 years and then libor + 5.
I’m torn between cash flow and paying down the asset.
Curious to see what you guys think.
@James Krell assuming this is this a SFR? I would shop this around to some local lenders, if this is a SFR you should easily be able to get a rate at ~3% fixed, amortized for 30 years (in my area most lenders only go 75% LTV, but there is a couple that will still go 80% LTV). Reach out to some local investors in your area for lender recommendations. If you planning on holding this property for long term, get loan that locks the interest rate in for 30 years. Interest rates are historically low right now, being able to lock that rate in for 30 years in awesome. Unless you only plan on holding onto this property for a few years, I would absolutely be paying down the principal on the loan.
@James Krell you may be able to get a 30 yr fixed DSCR/property cash-flow loan at 80% LTV for a 4.75% - 4.875% rate and even lower for a 75 LTV on 30 yr fixed. Both are without buying down.
This looks good on paper. You will be coming out of the deal making money after the cash-out refinance so the COC return is infinite. What would the cashflow be with the new 30yr loan? At 80% of the appraised value brings you just under the 1% rule.
With a hard money lender 5% for a 30 yr amortization loan seem about right to keep it in a LLC. I wouldn't risk the 10/1 ARM because I don't think in 10 years the rates will be as low as they are now.
As long as it has PURE cash flows I would pull the trigger using option #1.