BRRRR With Traditional Mortgage

4 Replies

Hello all! 

I am still learning a lot about real estate. Every time that I hear somebody talk about BRRRR, it involves hard money up front which hurts, even paying just interest. Most of the properties I look at have tenants and are livable. Is it possible to get a traditional loan, then rehab (pay cost out of pocket for this), rent, then refi for the improved value?

Thanks!

@Paul Lambert If it is livable/rentable then you are probably not getting a great deal on it. Do you find your properties off market and sourced yourself? I think that is the only way you could get great value in this situation. If you are buying from a wholesaler or off the MLS you won't have much margin.

When you preform a refinance you are doing a regular refi where they will see what you currently owe on the property and payoff that amount and then write you a mortgage for the same amount and will sometimes finance in the closing costs of the refi. This can be done at 80% of the homes value. Or you can do a cash out refi where it doesn't matter what is currently owed on the house but they will give you 70 - 75% of the homes value in cash, first to pay off any existing liens and then the balance to your account. If you buy a livable property, chances are you are not paying 70% or below the ARV so once you pay for repairs, you are in a situation where you won't qualify for a cash out refi like what most BRRRR investors are looking for and if you do a regular refi you may end up leave 10% or more of the homes ARV in the property which is also not ideal for BRRRR.

The great thing about BRRRR is that you end up making money on the refi or that you now own a property for 0$ or 5% or less of its current value but you have a 30 yr note with no PMI.

I am not a BRRRR expert, so those of you that are, please comment and prove me wrong or right so we can all learn.

 @Ryan Blake @Paul Lambert

Ryan's answer pretty answers your question perfectly.

Theoretically, you could do exactly what you are asking but you have to make sure the numbers work. You would have to wait a minimum of six months to do a cash-out refinance to BRRRR out of the first mortgage. You would incur holding costs and other costs that would not be in your rehab.

Paying for two sets of closing costs on traditional mortgages would eat heavily into your numbers. We only got 70% ARV on our first BRRRR.

Nothing is impossible but could be very improbable. If the numbers work then they work but know that estimates are just those. 

Any other questions let me know!

I have BRRRRed both our rentals and also refinanced out a live and flip prior to selling.

I do BRRRR, but I use my own cash to purchase and rehab and then refinance to replenish my cash funds to do it again. Hard money is a common option, but of course that comes at a cost.

If those options aren't making sense for you perhaps look for an owner financed deal. Many distressed properties are owned outright and could be owner financed. Then you only need to fund the rehab, which you might be able to do with your own cash or short term debt like credit cards.

Originally posted by @Paul Lambert :

Hello all! 

I am still learning a lot about real estate. Every time that I hear somebody talk about BRRRR, it involves hard money up front which hurts, even paying just interest. Most of the properties I look at have tenants and are livable. Is it possible to get a traditional loan, then rehab (pay cost out of pocket for this), rent, then refi for the improved value?

Thanks!

 Hey Paul

People do it all the time. You just have to buy it right. Usually you get those deals from a probate attorney or a divorce attorney.

Tom