Purchase all cash, refi, repeat. Would that work?

39 Replies

Aloha BP!

Exactly as my title states, if I were to purchase a property all cash, then wait for the seasoning period (if there is any), and purchase the next property, are there any setbacks to this? There are a few things I would need to account for such as refinance costs, making sure the property still cash flows, the amount of the refi LTV and if that's enough for the next property. Are there any other downfalls to this strategy? Is this strategy used commonly or am I just heading in the wrong direction? Thanks in advance. ALOHA!

@Justin Young yes, this is a good strategy usually referred to as the BRRRR strategy here on BP (Buy, Rehab, Rent, Refinance, Repeat).. It's essentially what you are talking about, if you look it up on the site, you'll find lots of results... You just have to make sure you buy a good deal!

Good direction!

-Kyle S.

The only downside is that you have cash tied up in a property while you wait to refi. In my opinion what you are talking about is the best way to build a strong portfolio. Good luck!

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6 months title seasoning is common today.

Can do “delayed financing” within six months on a rehab. Can only get your initial purchase price and closing cost back, not rehab costs.

Kerry, why is there any seasoning, and why can you only get out what you have in it??  I'm new at this, not trying to be argumentative in any way.  If my grandmother died and left me her free & clear house, why couldn't I go get a mortgage on it for 80% of its market value?  And obviously the grandma-died scenario is not what we're doing; we are actually doing what the original poster suggested.... purchasing with cash then refi'g.  My point is: why does the reason we own the house f&c matter to the bank??

Hope this all makes sense.... (it does in my head) :)

Thanks so much!!

@Marna N. It makes sense to me. And I have been wondering the same thing. I am new to the brrrr process and was considering an all cars acquisition. Seems odd there would be a seasoning period still. I would love to know the answer!

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just to clarify since I don't think any one has truly answered the question above. Using the BRRRR strategy on TK is very unlikely and somewhat silly. If you buy a tk, you will not have enough equity in the property withdraw funds. The TK provider wouldn't leave that much meat on the bone. Second, why would you use cash on a TK if you intend to refi in 6 months. Just get a loan up front. Why would you want to pay closing costs twice?

Also, 6 month seasoning is a very common practice on the residential side. Many banks will require 12 months! If you refi through a commercial lender, most will not care about a seasoning period.  

@Christian Bors I see your point about a TK property & about paying cc twice.  I still don't see why there's seasoning.... Seasoning from what?!?  The purchase date I guess?  Out of curiosity: Why does a lender care?  Thanks.

@James Lusk my thoughts exactly about it just being a "finance" vs a refi.  I obviously have a lot more to learn! :)

I think there is some confusion here.

As someone stated in an earlier post in the the thread, if you pay all cash you can use delayed financing and get your purchase price plus closing costs back right away after buying all cash.

If you want to use the BRRRR strategy to have a bank give you a loan based on the new ARV after doing repairs, you will have to wait 6 months from the original purchase before they will do this. (The only way around the seasoning requirement is you use an asset based/portfolio lender who will charge much higher fees, points, and interest rates than a conventional lender).

Of course you can use both strategies by paying all cash and using delayed financing to get your purchase price and closing costs back. Then, in 6 months, you can do a cash out refi to get the property appraised at its new value. This would allow you to hopefully get most of your money back out of the deal. The downside is paying closing costs twice in 6 months

And, as was stated earlier, the BRRRR strategy is not going to work with a turnkey purchase. You will most likely have little to no equity after these kinds of purchases.

@Darren Budahn . Indeed there was confusion! You just cleared it up for me though. I was wondering where the seasoning requirement was coming from. As you clarified, it's from the lender providing either the refi, or delayed financing. 

I was thinking about it the wrong way, thinking that the requirement came from your hard money lender, or whichever original lender you used. This had me wondering why a seasoning period would be required if you paid all cash. All clear now. Thanks!

Am I safe to assume "turnkey" is purchasing a property that is already rehabbed?

Does BRRRR work if you are getting an off market property from a wholesaler and then having the rehab done? Prior to purchase and rehab, is there a way to estimate what the value of a property will be after it is rehabbed and tenanted to ensure there will be built in equity?