Lender Needed for Rates for a Class on the BRRR Strategy (BRRRR)
I am about to teach a class (that may end up becoming a new book) on the BRRR strategy (or BRRRR strategy if you're doing it repeatedly).
Any lenders willing to help me understand the interest rates for a few situations so I can get a feel for the range of what people are seeing in a variety of real estate markets?
Ideally, you could provide me rates for someone with a 740 credit score for the following situations:
20% down non-owner-occupant rate and points:
25% down non-owner-occupant rate and points:
5% down payment owner-occupant with rate, points and monthly PMI:
5% down payment owner-occupant with rate, points with lender-paid PMI:
5% down payment owner-occupant with rate, points and one-time up-front borrower paid PMI:
Non-owner-occupant cash out refi at 75% LTV rate and points and seasoning requirement:
Non-owner-occupant cash out refi at 80% LTV rate and points and seasoning requirement:
Anything higher for LTV on a cash out refi for non-owner-occupant?
Non-owner-occupant rate and term refi at 75% LTV rate and points and seasoning requirement:
Non-owner-occupant rate and term refi at 80% LTV rate and points and seasoning requirement:
Anything higher for LTV on a rate and term refi for non-owner-occupant?
And, if you're interested, here's the outline of the class I will be teaching and may write a book on. This is a really rough draft. It will likely change before I present it next week to the investor group.
- What is BRRR? Back story of how I "grew up" with my father doing this and how I implemented this strategy early in my real estate investing career.
- Basic BRRR modeling in appreciating market with the Real Estate Financial Planner™ (REFP) software
- How do you model with REFP (delay collecting rent, higher closing costs to model initial financing, buy for below ARV with maybe 100% financing)
- Analyze a deal with The World’s Greatest Real Estate Deal Analysis Spreadsheet™
- Return on Investment Quadrant™ and Return on Equity Quadrant™
- Financing BRRR
- Will be financing property twice (find lender first)
- Initial Purchase (cash, line of credit, HELOC, conventional, FHA 203K, Fannie Mae Homestyle reno loan, seller financing, creative financing like subject-to or lease-option, hard money, private money)
- Refi (cash out refi, rate and term refi, private, hard money, commercial financing)
- With refi: taxes and insurance will likely go up
- Seasoning: lender dependent, likely to be at least 6 months, sometimes 12 months.
- Interior appraisals versus drive-by appraisals and challenging low appraisals (what is your plan?)
- Rates for today for: 20% down, 25% down, Nomad™ (3 variations of PMI), Investment Cash Out Refi (75%, 80% LTV, anything higher?), Investment Rate and Term Refi (75% LTV, 80% LTV, anything higher?)
- Modeling BRRR with REFP in a declining real estate market
- Modeling BRRR for Financial Independence/Retire Early folks
- Comparing BRRR versus Nomad™
Property - Pros and Cons of BRRR
- Many of these are not discussed anywhere else.
- Pros
- Pro over doing Nomad™ is don't need to move into the BRRR properties.
- In an ideal world can do it with no money down… more likely a low money down strategy (but you pay for that privilege with higher rates and increased financing costs)
- Possibly higher return on investment
- Can acquire properties faster (much faster than the 1 per year for Nomad™ and likely faster than 20% down payment if you require time to save down payments)
- Can invest remotely – invest in “better” markets
- Real Estate Investing Rules of Thumb: For every $10K you don’t have to finance, you save about $50 per month in payment.
- Can reduce interest rate risk of rates rising while saving money for your down payments or to Nomad™
- Buying properties sooner in an appreciating market will allow you have more properties as values go up
- Cons
- Severely limited property selection (most choose from the properties you can get at a big enough discount to do BRRR). These may not be the properties you'd want to buy for your rental portfolio long-term.
- Might have lower rent-to-price ratio (if you're not selecting properties optimizing to rental income)… again, less ideal rentals than selecting ideal rentals to begin. Further compounds with DSCR and qualifying for future loans.
- Might have higher maintenance than properties you might otherwise pick as a rental
- Might have reduced appreciation rate (based on having to pick from a limited pool of properties)
- Likely to have higher interest rates than doing traditional 20%/25% down payment buy and hold and definitely higher than buying as a Nomad™. This also will adversely impact your DSCR and your ability to qualify for future loans.
- Interest rate risk during rehab (rates could go up and it is unlikely you’re able to lock a rate that far out for a reasonable fee)
- Holding costs during rehab increases your amount invested (and decreases your overall ROI)
- Market risk during rehab (market can decline and you’re unable to refi at the level you originally believed you would be able to)
- Requires time and mental overhead to do rehab or manage a crew doing rehab
- Contractor and scope of work uncertainty during rehab
- Appraisal risk
- Buying properties sooner in a declining (negatively appreciating) market will see you have amplified losses. While worse in an appreciating market, dollar cost or dollar value averaging your property acquisitions through buying at regular intervals might be better.
- Finding BRRR purchase candidates (a discussion of property selection, low ball offers, below ARV property acquisition, off market deals)
- All other things being equal, simpler is better
- How much equity are you likely to end up with? If you’re lucky 20%. More likely less. Cost to capture that equity? Equity wasted in finance costs? Even experienced investors aiming for 25% equity are rarely hitting 20%.
- Optimizing property selection: best discount, best cash flowing rental, best appreciation? Not usually the same! MREI book and ideal rentals.
- Likely to leave some money in the deal… rarely a true no money deal. If you’re going to leave money in the deal, why not Nomad™ and get better long-term properties with better rates and better cash flow in your portfolio?
- Challenges with using LLCs and possible solutions
Here's the place where I will ultimately publish the class and likely the book if I write it:
https://realestatefinancialplanner.com/brrrr-strategy/
It will be a follow up to the 240-page book I wrote for my son on how to achieve financial independence that you can download and read or link to share with your clients here:
https://realestatefinancialplanner.com/book/
Thanks in advance. I do appreciate you taking the time to reply with rates.
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