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

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

Justin Young
Investor · Honolulu, HI · Member since 2016 · 362 posts · 93 votes

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!

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Christian Bors
Real Estate Agent · Mechanicsburg, PA · Member since 2014 · 529 posts · 217 votes
10y

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.  

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  • Kyle Scofield
    Real Estate Investor · Madison, SD · Member since 2015 · 187 posts · 61 votes
    10y

    @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.

    4Reply
  • Tyler Amburgy
    Rental Property Investor · Gallatin, TN · Member since 2016 · 39 posts · 29 votes
    10y
    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!
    0Reply
  • Justin Young
    OP
    Investor · Honolulu, HI · Member since 2016 · 362 posts · 93 votes
    10y

    Sorry I forgot to state that I'm trying to do this with a turnkey property. Does this strategy still make sense with a TK?

    @Kyle Scofield

    @Tyler Amburgy

    0Reply
  • Kyle Scofield
    Real Estate Investor · Madison, SD · Member since 2015 · 187 posts · 61 votes
    10y

    @Justin Young if the turnkey provider left enough meat on the bone for you to work with the equity to maximize your ROI, then the same principles apply.. Just have to make sure the property you're buying is a deal.

    0Reply
  • Justin Young
    OP
    Investor · Honolulu, HI · Member since 2016 · 362 posts · 93 votes
    10y

    Much appreciated advice @Kyle Scofield.

    0Reply
  • Kyle Scofield
    Real Estate Investor · Madison, SD · Member since 2015 · 187 posts · 61 votes
    10y

    @Justin Young no problem! Just think of it is the BRRRR strategy without the rehab part!

    0Reply
  • David BellPro Member
    Real Estate Agent · East Brunswick, NJ · Member since 2016 · 129 posts · 63 votes
    10y
    Is there a seasoning period before you can cash out refi if you buy the first one all cash?
    1Reply
  • Kerry BairdPro Member
    Rental Property Investor · Melbourne, FL · Member since 2011 · 3k+ posts · 2k+ votes
    10y

    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.

    1Reply
  • Marna N.
    Investor · Greenville, SC · Member since 2011 · 22 posts · 5 votes
    10y

    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!!

    2Reply
  • James Lusk
    Rental Property Investor · Lake Forest Park, WA · Member since 2015 · 127 posts · 57 votes
    10y
    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!
    1Reply
  • James Lusk
    Rental Property Investor · Lake Forest Park, WA · Member since 2015 · 127 posts · 57 votes
    10y
    *cash
    0Reply
  • David BellPro Member
    Real Estate Agent · East Brunswick, NJ · Member since 2016 · 129 posts · 63 votes
    10y
    Kerry Baird If I purchase and rehab with all cash, I can't refi and pull out 70-75% of appraised value once it is finished and tenanted?
    0Reply
  • James Lusk
    Rental Property Investor · Lake Forest Park, WA · Member since 2015 · 127 posts · 57 votes
    10y

    At that point it wouldn't be a refi, it would be a finance, right?!

    1Reply
  • David BellPro Member
    Real Estate Agent · East Brunswick, NJ · Member since 2016 · 129 posts · 63 votes
    10y
    James Lusk lol good point. Basically pulling the $ back out to do another one.
    0Reply
  • James Lusk
    Rental Property Investor · Lake Forest Park, WA · Member since 2015 · 127 posts · 57 votes
    10y

    Who is it that requires the seasoning period?

    0Reply
  • Christian Bors
    Real Estate Agent · Mechanicsburg, PA · Member since 2014 · 529 posts · 217 votes
    10y

    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.  

    8Reply
  • James Lusk
    Rental Property Investor · Lake Forest Park, WA · Member since 2015 · 127 posts · 57 votes
    10y

    @Christian Bors. In the case of a TK, I see that wouldn't make sense. In the case of a true BRRRR though, would a seasoning period be required if you had paid all cash?

    2Reply
  • Marna N.
    Investor · Greenville, SC · Member since 2011 · 22 posts · 5 votes
    10y

    @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! :)

    1Reply
  • Darren Budahn
    Investor · Milwaukee, WI · Member since 2014 · 811 posts · 420 votes
    10y
    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.
    3Reply
  • James Lusk
    Rental Property Investor · Lake Forest Park, WA · Member since 2015 · 127 posts · 57 votes
    10y

    @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!

    0Reply
  • George DespotopoulosBusiness Member
    Lender · New York, NY · Member since 2016 · 936 posts · 287 votes
    10y

    @Justin Young. 

    Couple of items to remember:

    1) Specialty lenders usually go up to 70% LTV on Cash-out Refis. At least 6 months but it is encouraged 12 months of seasoning for properties before you cash out.

    2) Minimum 1.25x for DSCR.

    Good Luck with all your future endeavors. 

    MoFin Lending4.9152 Reviews
    WebsiteView Page
    0Reply
  • David BellPro Member
    Real Estate Agent · East Brunswick, NJ · Member since 2016 · 129 posts · 63 votes
    10y
    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?
    0Reply
  • Chris T.
    Investor · Downers Grove, IL · Member since 2015 · 1k+ posts · 955 votes
    10y

    One drawback from BRRRR is you don't get the appraised value that you're projecting. So make sure you do your comps properly.

    It's really tough to do a BRRRR strategy with turnkey just like what @Christian Bors

    has mentioned. Most TK buys their properties at a discount, rehabs, rent it out, mark it up then sell it to you at a fair market value w/ property management in place. Even if you pay with cash, it's probably retail price. If you cash out, you would get only 70-80% (depending on the lender)  of the bank's appraised value. And you would have 2 closings costs. 

    check out Brandon Turner's blogs on this strategy 

    https://www.biggerpockets.com/renewsblog/2016/06/1...

    and use the BRRRR calculator

    https://www.biggerpockets.com/renewsblog/2016/06/3...

    4Reply
  • Brent Coombs
    Investor · Cleveland, OH · Member since 2015 · 6k+ posts · 2k+ votes
    10y

    @Darren Budahn, you wrote in your second sentence, above: "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."

    BUT, if you used all cash for the original purchase AND rehab, your first sentence should still apply:- "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" (emphasis added)! The other caveat about "right away" is that the banks' appraisal needs to be 43%+ more than what you have into it, otherwise their 70% financing (and each subsequent refinancing) won't get you all your cash back!

    Which, as others have pointed out, virtually rules out all turnkey buys to begin with! My 2c...

    0Reply
  • Darren Budahn
    Investor · Milwaukee, WI · Member since 2014 · 811 posts · 420 votes
    10y

    @Brent Coombs

    You are absolutely correct. And I think a lot of people don't realize the point you made, which is that you need to be buying at a significant discount if you are wanting to get all your cash back out of the deal. 

    1Reply
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