Can BRRR work as well as BRRRR?....

Question

Let's get to it! And apologies in advance if this is an utterly noob and obvious question. Can/does BRRR work as well as BRRRR?! That is, buy-RENT-refinance-repeat (without the rehab).

Why am I asking? I currently own 3 SFH rental properties in Florida. I own these properties under my name, as I have not established any LLCs (separate topic I need assistance with). As I understand it, I likely have 1 or 2 more deals that I could conventionally finance with 20% down before the banks stop lending to me.

In comes private, hard, and crowdsource lending. The BRRRR strategy intrinsically depends on BUYING at a discount to force equity from the get-to, and increase that equity post-rehab through (ARV) and over a year period - significantly enough that a refinance can be executed to cash out at a lower rate and pay off the higher interest loan. Correct?

So, what if the homes I am looking at are fairly new, built in 2000 and up. These homes need little if any rehab done. It is also a seller's market in Southwest Florida whereby these homes are flying off the shelf at pretty much market value. The only equity in these deals are really whatever your downpayment is, and maybe a 1-2K under asking price.

If a bank won't lend to me conventionally - how would I leverage private/hard/crowd source lending to do this? Does it even make sense if I can't refinance after 1 year as I likely won't have gain sufficient equity?

@Brandon Turner, I summon you!! :)

Manny Dorticos · Answer

@Thomas Manning None in particular other than the Florida market for multifamily is extremely competitive and $$$$. Keeping in mind that I mostly look for turnkey properties as I live and invest out of DC.

Travis Sperr · Answer

Why would the banks stop lending to you? You can finance up to 10 properties conventionally and the right local banks will provide unlimited loans to the right borrower. If you don't rehab, you don't add value, unless you negotiate a smoking off market deal.

Steve K. · Answer

@Manny Dorticos

I believe you're correct. If your market(s) are such that you can only buy rentals at full retail price (i.e. turnkey....ready to rent), then you get your best 30-yr financing and have to be content with the cashflow and slower wealth growth.

In Denver, we've been appreciating at about 10% per year for 3 or 4 years. Someone who bought 3 years ago could have 25 or 30% newly gained equity.....they could conceivably do the cash out refi, and use it to repeat (acquire another rental). If it should keep appreciating....you could conceivably cash-out refi again in several years.

I can't think of any other way.....you need the rehab equity or the appreciation equity.....otherwise, there's no free lunch.

Neil Da Silva · Answer

I'm having a similar issue with potential deals in Kissimmee and Orlando areas. Everything is market. How can you you use hard money or portfolio lending to secure these and make the deal work in terms of numbers IF we're not buying equity upfront in the BUY?

Steve Racicot · Answer

@Manny Dorticos Without the "Rehab" I dont see how you can refinance as there simply isnt enough equity in the property. So I don't see how the BRRRR strategy could work. Hopefully someone else will chime in and enlighten.

Bob Okenwa · Answer

@Manny Dorticos

The main reason you need to rehab the property is to force as much equity as you can into through significant improvements. When it's time for a cash-out refinance, depending on the lender, you'll get to refinance at somewhere near 80% LTV. That is why you need to boost equity as much as possible rather than relying simply on market appreciation as the market may not yield the high enough increase in value as a rehab may generate.

Thomas Manning · Answer

@Manny Dorticos What are the pros to having many SFH rather than having one multifamily unit?

Travis Sperr · Answer

@Manny Dorticos a lot of folk use the terms interchangeably - but I really encourage you to work with a DIRECT Fannie Mae lender - no bank or servicer overlays allows you to obtain the best financing conventional offers. Otherwise you could get capped on properties, need increased reserves, title seasoning, lease credits, lower loan to values, etc.

Manny Dorticos · Answer

Thank you all. This is what I suspected but since I've never financed any other way BUT conventional I wanted to ensure I had the correct understanding.

@Travis Sperr - Yes, thank you. I literally learned this about 2 hours ago, after a follow-up with my mortgage broker. For those that don't know. A person can conventionally finance up to 10 properties total. Freddie Mac will do up to five (5) only and Fannie Mae will do up to ten (10). Any brokers out there that can confirm this is appreciated.

SO, thank you all for your inputs - I believe I should be all set at least for my first 10 properties through conventional financing.

Can BRRR work as well as BRRRR?....

Can BRRR work as well as BRRRR?....

Most Popular Reply

9 Replies