BRRRR - How much can you actually cash out at the Refi?

4 Replies

Hi BP - I am in the process of closing on my first duplex and I want to use the BRRRR strategy on this property. The part of the BRRRR strategy that I do not fully grasp is how much can one truly cash out after refinancing a property? For example:

Purchase Price = $20K

Rehab/Construction Loan from Bank = $80K

After the rehab is complete and tenants are occupying the property - if I refinance the property through the bank for $150K - am I allowed to withdraw 75% of $150K loan or is it the difference between the original construction loan of $80K and refi loan of $150K? 

Thank you for your help,

Scott

Depends on the rehab loan, but if you can skip the seasoning (6-12 mo) then you can do up to 75-80% of the ARV (150k loan).

If you have seasoning, it's 75-80% of purchase price+ rehab.

Seasoning is the main factor here.  Most banks will want 12 months of seasoning.  Some lenders will allow less.  Some will lend 70% of appraised value after only 1 month of ownership.  Others want to see 6-12 months to lend off the appraised value.  But the most you'll get is 75%.

Originally posted by @Scott Graham :

Hi BP - I am in the process of closing on my first duplex and I want to use the BRRRR strategy on this property. The part of the BRRRR strategy that I do not fully grasp is how much can one truly cash out after refinancing a property? For example:

Purchase Price = $20K

Rehab/Construction Loan from Bank = $80K

After the rehab is complete and tenants are occupying the property - if I refinance the property through the bank for $150K - am I allowed to withdraw 75% of $150K loan or is it the difference between the original construction loan of $80K and refi loan of $150K? 

Thank you for your help,

Scott

If you're using a fannie / freddie loan and you have 6 months seasoning you can get the full 75% of 150k or 112.5K minus the 80k outstanding or whatever the payoff for that 80k is at the end.

If you cash out before the 6 months you would be limited to 70% of your acquisition cost (the amount on your final settlement statement at purchase with all costs included).

Now this all differs if you go to a local community bank who portfolio's their commercial loans as they may let you cash out up to 75-80% with no restriction in terms of title seasoning period (some will have some seasoning). I know a few in Seattle that will cash out to 80% on non owner occupied 1-4 or apartments if the units are leased up and rehabbed with out title seasoning. This is typically why I will not use FNMA/FHLMC money. The pro's are the flexibility, terms, less or no title seasoning and the con's are you will lose 30 year fixed when going with a local community bank that portfolio's the loans in most cases.

@Scott Graham , wow. Someone gave away a lot of their own potential equity. Kudos on getting $50k for "free". So, after the rehab, YOU will be in a better position to answer your own question than any of us.

We'll look forward to reading about your actual outcome, with anticipation. All the best...

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