BRRRR refi issue: now what?

Member since 2019 · 17 posts · 10 votes

Hey everyone, I am trying to do a cash-out refi on my first BRRRR deal and am having serious issues...as in, "no." A lot of it is COVID-19 related, but how do you guys get financing for these if they are your first one and lenders are looking at DTI? Also...this may help you in answering my question...it's an up down duplex. Upstairs is a well-performing AirBnB (which some lenders are not so cool with, but they make a great return) the downstairs is not rented but will be after this is all over. Before all of this happened Visio was lined up to finance it and now a lot of non QM lenders aren't lending and if they are, their terms are not good. Should I wait it out until lending calms down? My PML's % rates are killing me! Thanks in advance:)

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Aaron Hollingshead

Flipper/Rehabber · Roswell, NM · Member since 2014 · 74 posts · 65 votes

@Teresa M. - If I was you, I'd definitely get a long-term renter in there first of all. I think that with what's happening now, the security of that would be appealing. Also, when you talk to lenders, having that income helps an awful lot.

Second, I'd talk to community banks. When I first heard people mention community banks and credit unions, I thought of them as being the same. I then approached 4-5 credit unions only to discover that their rules seemed to be just as strict as the big banks/lenders. Finally I tried a community bank (2 total branches, the president greets me with a handshake, everybody on a first name basis, etc) and everything became so much easier!

You might not get the most competitive rates in the world, but some of the benefits make it worth while in my opinion. For instance, I have a quad that brings in 2,000 monIy with a loan of 90k through this bank. Terms are 6% interest 20 year term with a 3 year call. Might not seem to be the best terms in the world, however you have to bear in mind that my loan origination fee was less than 100 dollars as opposed to 5k-10k through a lender, there are very few questions asked, relationships are what count. Also, later on, you can always refinance in a traditional loan if you want to. I could go on forever about the benefits of working with a small local bank. Also in my case, once I built a relationship with them they ended up lending on 3 of my brrrr deals at once while providing 75-80% of the projected ARV. In other words if I buy a house for 60k that needs 30k of work that I'll sell for 120k, they will typically lend me the entire 90k needed. Finding the right bank made all the difference. Best of luck!

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Caleb Heimsoth
Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes
6y
@Teresa Matias well you're vacant on one side and the Airbnb is not going to help you currently as that's a lot of risk for a lender. What's your current DTI? You have to throw everything in the normal playbook out the window. That's gone now.
Right now cash is king and those with strong balance sheets win. If you don’t have that you’re going to have some issues.
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Teresa M.
OP
Member since 2019 · 17 posts · 10 votes
6y
@Caleb Heimsoth thanks for your reply. Do you have any suggestions on what I can do to make it more appealing to lenders? I really don't want to put a long term tenant in there right now with the tourist season ramping up :/
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Caleb Heimsoth
Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes
6y
Originally posted by @Teresa M.:
@Caleb Heimsoth thanks for your reply. Do you have any suggestions on what I can do to make it more appealing to lenders? I really don't want to put a long term tenant in there right now with the tourist season ramping up :/

Are you anticipating a large tourist season with covid-19 happening right now?
If not, I'd put a long term tenant in there and get the other side rented. Then get your DTI lower. Then try to refinance. It's going to be tough and slow
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Teresa M.
OP
Member since 2019 · 17 posts · 10 votes
6y
@Caleb Heimsoth thanks again for your response. This property is not far from you...in Atlantic Beach, NC. We are already having reservations booking so...I don't know. I still make more on two separate guests staying 3 nights each than I would a long-term renter....so I'm torn. I don't really know which way to go.
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Caleb Heimsoth
Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes
6y
@Teresa Matias you could ask your private lender to refinance it, with them
0 Reply
Teresa M.
OP
Member since 2019 · 17 posts · 10 votes
6y
I had thought about that. So, if she was up for that....would that mean we would qualify for the loan together, and then when the property was performing at a great level I could refinance to relieve her from being on the loan? If so, what would be fair to offer her as an incentive to do that as far as monthly profit from the property? Thank you!
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Steve Vaughan
Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes
6y
Originally posted by @Teresa M.:
Hey everyone, I am trying to do a cash-out refi on my first BRRRR deal and am having serious issues.
How long ago did you purchase? Seasoning is most always required - 6 to 12 months. I was told 6 months for a rate/term, 12 months for cash out.
There also seems to be a general lack of appetite from cash out refi lenders, but wondering if you have seasoned yet first.

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Teresa M.
OP
Member since 2019 · 17 posts · 10 votes
6y
I purchased it in August. The rehab took 4 months. We started having airbnb renters in January, but not more than 2-3 each month bc the tourist season really gets going Memorial Day to Labor Day. I had broker working on the refi and she took foooooorrrrevvvverrrr...so I contacted Visio. They had said they would refi it with no problem at all...and then COVID-19 happened.
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Andy Nathan
Rental Property Investor · Chicago, IL · Member since 2019 · 203 posts · 119 votes
6y
@Teresa Matias my partner and I are having the similar problems on a BRRRR in Chicago. Keep checking with lenders and start broadening your lender network. I have some interesting credit unions that will hopefully open up some great opportunities when this is done. Keep calling lenders of all types.
3 Reply
Teresa M.
OP
Member since 2019 · 17 posts · 10 votes
6y
@Andy Nathan Funny you should mention credit unions :) I've been researching and reaching out to the credit unions I may qualify to be a member of for the last several days. Great idea! I hope we find one that is a good fit for us both! :)
2 Reply
Andy Nathan
Rental Property Investor · Chicago, IL · Member since 2019 · 203 posts · 119 votes
6y
@Teresa Matias absolutely! Be interested to hear your results on them.
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Teresa M.
OP
Member since 2019 · 17 posts · 10 votes
6y

@Andy Nathan here is a supposed list anyone can join. Some require a membership of an organization they support to get around other obvious requirments. https://www.depositaccounts.co...
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Andy Nathan
Rental Property Investor · Chicago, IL · Member since 2019 · 203 posts · 119 votes
6y
@Teresa Matias awesome!
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Joseph CacciapagliaBusiness Member
Lender · San Antonio, TX · Member since 2020 · 1k+ posts · 1k+ votes
6y
Unfortunately, a lot of people are in the same situation today. The only good solution I've seen at the moment, is taking on a partner in the property, and using their strong income/credit to qualify for the refinance. There really is no standard for what you need to offer them to make this work, so it's up to what you can negotiate. It seems like there is a lot of risk left in this deal, so it may be a difficult sell at the moment, but assuming you've created a decent chunk of equity, there should be some way to make it work.
[email protected]979-218-2286
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Teresa M.
OP
Member since 2019 · 17 posts · 10 votes
6y
@Joseph Cacciapaglia Thanks for responding. Yes, there is a lot of equity created. PP: $235k Rehab:$55K ARV: $405k I had it appraised prior to purchase to make sure it was worth what I thought it would be and I was correct...but I don't know if the new appraisal will come back with that amount with all that is going on now. Thanks:)
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Caleb Heimsoth
Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes
6y
@Teresa Matias no I meant have the private lender amend the original terms.
Maybe it’s higher interest rate but interest only. Or maybe it’s higher interest rate and longer amortization and you pay points/extension fees.
It’s hard to give advice on this option because I don’t know what the original loan terms were.
0 Reply
Teresa M.
OP
Member since 2019 · 17 posts · 10 votes
6y
@Caleb Heimsoth Ah-gotcha. Makes sense. Thanks.
0 Reply
Rob Drum
Real Estate Broker · Bradenton, FL · Member since 2017 · 544 posts · 363 votes
6y
@Teresa Matias
I’ve got 4 BRRRs currently on PML. My Community bank will do a blanket refi on them after the PPP loan storm dies down.
However, I’m considering offering my PMLs to convert the loans to interest only paid monthly at “stabilized” property type interest rates.
Secure monthly income is pretty valuable in these times. Your PML May be happy to keep that money working, even if the rate is lower.
2 Reply
Stone Saathoff
Investor · San Antonio, TX · Member since 2019 · 576 posts · 307 votes
6y
As of right now a lot of BRRRR investors are stuck on their plans to cash-out refinance. Your best bet is talking to your PML and trying to work something out, we are probably at least a couple months out from lending coming close to normal with the banks. As for long term VS airb&b, talk to the bank you're trying to re finance with and see if it makes a difference to them. Is your locality opening earlier than others? It may be worth it to leave as an airb&b if the income is the same with just a couple bookings.
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Teresa M.
OP
Member since 2019 · 17 posts · 10 votes
6y
@Rob Drum and @Stone Saathoff Thanks for your responses! I really appreciate you all taking the time to answer. Our beaches here are now open and so are the vacation rentals. Reservations are steadily coming in already. I did talk to my PML about it but she was not open to changing the terms. I'm paying her $2500/mo and have been for a lot longer than I wanted to. It's eating up my profit really bad, so my big question for all of you guys more experienced than me is:

What should I do differently to mitigate my risks in case something unforeseen like this happens again in the future? I'm not super stoked about making the same mistakes twice:)

Thanks @Caleb Heimsoth @Joseph Cacciapaglia @Andy Nathan @Steve Vaughan for taking the time to offer advice! I really appreciate it!

@Rob Drum
2 Reply
Caleb Heimsoth
Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes
6y
@Teresa Matias the only sure fire way would be to keep enough cash on hand to pay off the PML if you can’t refinance.
If you don’t do that, nothing else is ever guaranteed. Of course these events don’t happen often but two things like this have happened in under 10 years.
You could also find another PML at a lower interest rate and refinance with them.
1 Reply
Stone Saathoff
Investor · San Antonio, TX · Member since 2019 · 576 posts · 307 votes
6y
@Teresa M. If you haven't run out of money, and you're going to be OK for the next few months regardless of if the re-finance gets approved, I would say you were already appropriately prepared. A lot of other Airb&b hosts who were heavily leveraged are having a fire sale right now, you're actually not in a bad spot, especially if you can still break even or make any kind of profit while on the PM loan. This is part of the risk involved, it isn't necessary to be expecting a global pandemic at any given moment.
1 Reply
Nzinga Young
Investor · Brooklyn, NY · Member since 2018 · 20 posts · 95 votes
6y
@Teresa Matias try calling every non-QM lender you can find and ask to be contacted as soon as they return to business as usual. There’s no
way of knowing when it will happen, but at least you’ll get some calls when it does. Sorry you’re caught in this situation. You’ll get through it!
2 Reply
Ruth Blue
Realtor · Pigeon Forge, TN · Member since 2018 · 230 posts · 111 votes
6y
HI @Teresa M. My mom just recently went through this and it is definitely harder. She had to use her local MIG representative and they have a program that was funded by what was called an investor loan. They have a special loan officer that deals with private money lenders and you have to meet their loan qualifying terms. She qualified to cash out refinance her BRRRR but needed to have 2 years of investment property showing profit. 6 month seasoned. I know she said her normal lender wouldn't even consider her even with 790 credit and very low DTI because income is all from self employment. So many lenders only want w2! Never give up. Live the Happy Life
0 Reply
Aaron Hollingshead
Flipper/Rehabber · Roswell, NM · Member since 2014 · 74 posts · 65 votes
6y
@Teresa M. - If I was you, I'd definitely get a long-term renter in there first of all. I think that with what's happening now, the security of that would be appealing. Also, when you talk to lenders, having that income helps an awful lot.
Second, I'd talk to community banks. When I first heard people mention community banks and credit unions, I thought of them as being the same. I then approached 4-5 credit unions only to discover that their rules seemed to be just as strict as the big banks/lenders. Finally I tried a community bank (2 total branches, the president greets me with a handshake, everybody on a first name basis, etc) and everything became so much easier!
You might not get the most competitive rates in the world, but some of the benefits make it worth while in my opinion. For instance, I have a quad that brings in 2,000 monIy with a loan of 90k through this bank. Terms are 6% interest 20 year term with a 3 year call. Might not seem to be the best terms in the world, however you have to bear in mind that my loan origination fee was less than 100 dollars as opposed to 5k-10k through a lender, there are very few questions asked, relationships are what count. Also, later on, you can always refinance in a traditional loan if you want to. I could go on forever about the benefits of working with a small local bank. Also in my case, once I built a relationship with them they ended up lending on 3 of my brrrr deals at once while providing 75-80% of the projected ARV. In other words if I buy a house for 60k that needs 30k of work that I'll sell for 120k, they will typically lend me the entire 90k needed. Finding the right bank made all the difference. Best of luck!
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