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:)
@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!
@Teresa Matias so much great advice already, but I am yet to see someone suggest a left side approach. With that high of a valuation, would you consider selling it, locking in the profits and using that 💰 to pick one or two projects from a stronger cash position?
@Joseph M'Mwirichia thanks for your reply! We have considered that strongly. We have other properties on the market and most things are just sitting since this has happened. Two went on the market the middle of March :( We may end up doing just that. I just really wanted to keep it because of the cash flow with tourists here, I didn't want to pay capital gains, and I like the tax benefits from rentals...but I still may have to sell it...
@Aaron Hollingshead our town is tiny, so I've been looking and reaching out all over the state for smaller banks...and credit unions, but maybe those won't work out. I guess we'll see.
I have changed my approach...Instead of presenting what I have and leaving it at that, I'm asking, "What do I need to do to refinance this loan with you? What do I need to do to get better terms if you will refi it?" If I need to put a long term renter in there I will. I had thought about it but I wasn't super stoked to do that only to have someone move and say, "Sorry...I can't pay because of COVID-19. I've had some other investor friends have tenants take advantage of not being able to evict so they aren't paying even though they are able...so I'm a bit scared to do that. The downstairs will have long term tenants in there. They are moving in most likely in June.
I'm hoping to hear back from some lenders looking hard at the refi today or the beginning of the week. Thanks so much for your reply!:)
@Joseph M'Mwirichia thanks for your reply! We have considered that strongly. We have other properties on the market and most things are just sitting since this has happened. Two went on the market the middle of March :( We may end up doing just that. I just really wanted to keep it because of the cash flow with tourists here, I didn't want to pay capital gains, and I like the tax benefits from rentals...but I still may have to sell it...
It's a crazy time indeed. You could get creative with selling options and move the property with seller financing/lease option deal with a decent non-refundable down payment. Properties are sitting partly because bank financing is paused, this could work to get around that. As for the capital gains, a 1031 play would mitigate that...but then put you on a clock.
@teresa
@Teresa M. I totally get it! we had a tenant break lease the last week of April and I was worried. Fortunately I had another tenant t in the place 10 days later. We have another unit we are finishing renovations on this week so I get the stress... hopefully our tenant screening helps us keep afloat! One of the biggest aids in our investing was our realtor's connections. I would recommend you ask your lender, realtor, prop manager, etc for recs. Sometimes they willl know "that lender" who can get things don for you. Sounds like you are persistent and tenacious...you're close!
@Teresa M. Do you have to use non QM financing? Could you tenant both with a 9 month lease and get this property refinanced? I know that takes a hit to your AirBNB business, but I see that business being challenging anyways right now. Keeping the leases shorter term would help you turn the property next spring and execute your intended business plan. If you this an option, pm me as I have a couple of lenders for you to check out. I know investor friendly lenders would only make you wait 3 months on a rate and term with a lease in place and 6 months if you were doing a cashout on conventional lending. It's still possible, you have to find the right lending partner.
As far as a non QM program, I've spoken with a few that do bridge financing that are looking to bring back a servicer in the next 60-90 days. If you can qualify for the conventional, I'd look into that.
@Teresa Matias Hey Teresa, more than happy to see if I can help from a no-qm side. Feel free to ping me.
The answer lies within identifying your root problem, and it has nothing to do with finance.
Your root problem is you had A strategy set, as in singular, one, and when things went sideways your trying to formulate a plan B. The answer is you MUST have a plan B, C, D when you get into a deal.
Part of my investment evaluation is Exit Strategies, and I use those as a weight factor against the presumed profit potentials. For example, a deal has exit strategy A that has a great profit potential, but exit strategy B is break even at best, C is a minor loss, and thats where exit potentials end. This I qualify as a HIGH RISK investment, because everything must go right to make a decent return. I might do it, but I will go into it with awareness. Now investment potential #2, strategy A has a fair profitable return, nothing to jump over but fair, exit strategy B is nearly matching profit % just an earlier exit and lower volume, exit C is a bit reduced but ok, and this goes on with profit potential exits all the way to H. This investment gets an A+ Risk Rating, because there is many profit bearing exits.
Everyone knows REI is to make $ (profit), but for some reason so many get tunnel vision and blindly chase that 1 dimensional big $$$$ ignoring reality of risk. Rule #2 is NEVER lose $$$$. It's very realistic that the losses of 1 bad deal can be as much as the profit from 10 good ones, chisel that into the granite of your mind! As @Brandon Turner says all the time it's not about how many deals you can do it's about how good the quality is of the deals that you do.
Multiple exit strategies day 0, before your in, and be ready to use them.
So much good stuff in here! @Teresa M. I agree with many of the suggestions as good options. I would personally keep calling lenders, especially smaller and local who understand the tourist market and properties there. Fingers crossed for you!