BRRR - Cash out Refi worth it?

Question

We are trying to do our first BRRR. We bought a SFH for 95k, put about 45k into it and it just appraised for $145k. The lender we are working with is estimating about $6k in closing costs so we would only get about $24,000 back. We already paid $575 for the appraisal. Is it worth paying $6k in closing to get out $24k. Should I try another lender (paying another appraisal) to see if I can get a higher appraisal and closing costs down? The only thing about the BRRR strategy that bothers me is having to pay closing costs twice. But is it worth it to free up more cash for the next property?

Andrew Postell · Answer

@Ashley Russell I want you and anyone who reads this to understand to be prequalified with a lender before you buy is so you can see their closing costs FIRST...before you make your offer.  That way, you can adjust your offer if you need to.  If you need 2 loans, which is a totally fine strategy, you need to factors these types of fees, as well as all other fees, into your offer.  Hind site and all of that but just keep it in mind for the next one.

Now, for your current loan, it might be hard for us to gauge your closing costs since we don't know your credit profile, etc.  But essentially you should receive a "Loan Estimate" or a "Fee Worksheet".  If you take that to another lender you can compare lenders and their fees.

Likewise, to answer the ultimate question "should I do this at all" it really lies in answering the question of  - do you need the money for any reason?  If you don't need that money, then keep the loan at a lower amount to cash flow more.  I hope that makes sense how I am describing this.

Tag me with any questions.  Thanks!

Bob Green · Answer

Hello Ashley,

What did you estimate the ARV to be? Were the comps provided from a licensed realtor? If you were expecting a much higher appraisal I would order another one. In my experience with appraisals, the same property can be appraised by 10 different appraisers and many times will come up with 10 different values. I just had a client whose property appraised for $220,000. We were expecting $280,000. I  ordered a second appraisal and that one came in $270,000.