BRRRR refinancing costs high

61 Replies

Originally posted by @Jeremy England :

looking back, If i target houses with more value, I think i may come out better.  The cost of financing a 120k deal isn't much more than a 100k deal.  In terms of taxes, insurance, prepaids, origination etc.  

I honestly don't know how anyone makes money doing this in the 60-80k range.  Financing costs eat up a ton of a percentage

 I can't speak for anyone else, because I am not them. However my plan includes paying cash for any properties under 100k. I have the means and very low expenses (my family of three live on 15k a year) which would allow me to pursue at least one of these properties every year if we don't include the cash flow on the property. My plan includes having 50 doors in the next three years.

Sorry for going the other direction a bit, just felt I could answer your question.

Originally posted by @Jeremy Lewis :
Originally posted by @Jeremy England:

looking back, If i target houses with more value, I think i may come out better.  The cost of financing a 120k deal isn't much more than a 100k deal.  In terms of taxes, insurance, prepaids, origination etc.  

I honestly don't know how anyone makes money doing this in the 60-80k range.  Financing costs eat up a ton of a percentage

 I can't speak for anyone else, because I am not them. However my plan includes paying cash for any properties under 100k. I have the means and very low expenses (my family of three live on 15k a year) which would allow me to pursue at least one of these properties every year if we don't include the cash flow on the property. My plan includes having 50 doors in the next three years.

Sorry for going the other direction a bit, just felt I could answer your question.

 I thought about paying cash for this property, and I may do that at some point.  But I was trying to do this deal with zero dollars of my own money being used..  Its not working out that way, so i'll have to game it to see where I would have come out better off, paying cash, paying SOME cash, etc

I'm in talks now with a private lender who intendes on using a sdira, so I may get far better terms going forward.

Originally posted by @Jeremy England :

Yea that is a good point. The market will change eventually.  Its been a sellers market here for a while. I dont know anyone who is buying all in (purchase, rehab, refi) for 75pct of arv without direct mail marketing

Ive thought of that but it seems its costly and you need time to answer those calls. I work fulltime.  Ive thought of marketing only to the neighborhood where i bought my rental property as thwre are numerous homes in there that need rehab and the rents are relatively high

I think i could have got another 100/mo given the response i had. I could be selective on the tenant.  

 I am sorry for a second comment, I failed to read through to the end before making my initial comment. Could you perhaps teach a Wife/Girlfriend/Brother/Sister/Nephew/Etc to answer calls and do the cost analysis and negotiations? It may take some time teaching them and apprenticeship but in the end you get a fully fledged fully trained phone person. In my scenario my wife (in my picture, isn't she gorgeous?! ^_^) works from home doing dispatch work, solely from the computer with no phone interaction and she has so much free time during the day that she does the book keeping and other administrative tasks for my business and still has time to spare.

Just a thought :)

Originally posted by @Jeremy England :
Originally posted by @Jeremy Lewis:
Originally posted by @Jeremy England:

looking back, If i target houses with more value, I think i may come out better.  The cost of financing a 120k deal isn't much more than a 100k deal.  In terms of taxes, insurance, prepaids, origination etc.  

I honestly don't know how anyone makes money doing this in the 60-80k range.  Financing costs eat up a ton of a percentage

 I can't speak for anyone else, because I am not them. However my plan includes paying cash for any properties under 100k. I have the means and very low expenses (my family of three live on 15k a year) which would allow me to pursue at least one of these properties every year if we don't include the cash flow on the property. My plan includes having 50 doors in the next three years.

Sorry for going the other direction a bit, just felt I could answer your question.

 I thought about paying cash for this property, and I may do that at some point.  But I was trying to do this deal with zero dollars of my own money being used..  Its not working out that way, so i'll have to game it to see where I would have come out better off, paying cash, paying SOME cash, etc

I'm in talks now with a private lender who intendes on using a sdira, so I may get far better terms going forward.

 Very good points. I never felt comfortable with big sums of money hanging over my head that is why I tend to go towards cash deals, but I am very interested in hearing an update on what you figure out from you running the numbers and your discussions with the private lender!

i do think there is a place for the large personal loan going forward.  But you need high credit and high income to get them.  Its a double edged sword.  YOu use it, and your credit will take a hit due to high unsecured debt.  Then you can't get approved for another for a while til you get that loan paid off.  

but, in this market, the auction properties are the best easy to find deals.  And there are 2 or 3 companies that are buying all of them.  Then reselling them to other investors or rehabbing themselves.  

to have a chance at them you gotta show up with cash.  Still a long shot but you can't win if you don't play.  

@Jeremy England I just refinanced my rental. I also wanted to go with a local broker but their fees were high. I ended up going with Better.com, which partners with BP. Their fees are low and I believe you get a $500 credit through BP. The entire paperwork process was done online and was very smooth.

SO you were all in for $78,000 and then after 6 month you still owe $78,000? What did you do with the other $22,000? You say you paid back a "lump sum" but didn't specify how much.

If you have negative cash flow on just the re-fi before taxes, cap-ex, repairs, etc. why not sell it for $95k you said you can get and take your $10k and walk away from this as a learning curve and you made some money. Find another deal do it again. 

People are saying in todays market they cant find a property that cash flows? Why are you buying the deal. If the market turn, which it will, what are you going to do when that house is only worth $75k? Your re-fi isn't being covered, your renter moves out, you have your turn over cost, holding during that time, etc.  You'll be bleeding money into a house that isn't worth what you owe.

DUMP IT... Don't get emotional about the place, if you can make something and learn a lot, SELL IT

Originally posted by @Earl Hatmaker :

SO you were all in for $78,000 and then after 6 month you still owe $78,000? What did you do with the other $22,000? You say you paid back a "lump sum" but didn't specify how much.

If you have negative cash flow on just the re-fi before taxes, cap-ex, repairs, etc. why not sell it for $95k you said you can get and take your $10k and walk away from this as a learning curve and you made some money. Find another deal do it again. 

People are saying in todays market they cant find a property that cash flows? Why are you buying the deal. If the market turn, which it will, what are you going to do when that house is only worth $75k? Your re-fi isn't being covered, your renter moves out, you have your turn over cost, holding during that time, etc.  You'll be bleeding money into a house that isn't worth what you owe.

DUMP IT... Don't get emotional about the place, if you can make something and learn a lot, SELL IT

I got a loan for 100k amortized over 7 years, bought the house at 62, rehabbed for 16, paid about 3300 in holding costs, and 950 in buying costs.  

I owe 78k because after what was left of the loan after paying all of the above, we paid back in a lump sum.  which was about 19k. 3 k has been paid back in interest via monthly payments.

So ive used roughly 2000 of my own money up til now.  

I anticipate having to pay 2500 or so in closing costs, then repay the balance of 3000 to the personal loan.  

making out of pocket about 7500

Rents are 1000, new payment on the new loan will be 450 or so.  Itll cashflow fine.  

I'm not worried about the house losing 25% of its value.  But should that happen, I'd still be cashflowing.  

I'm not emotional about it at all.  I just thin I can make more than 10k over time

Few takeaways: 1) not enough spread between the all in and the ARV. Even with the unexpected cost, a 25K spread is not enough for an immediate BRRRR. If the neighborhood was steadily appreciating, it may be down the road. Those gems may be found in all neighborhoods. Sometimes it is hard to find a good deal in a hot neighborhood but it is easy to get emotionally sucked into thinking that is where you have to do a deal. It is about the numbers and the long game. 2) Build your team. Before I do most deals I have my contractor give me estimates and I call my lender providing the basics, my long term plan, and my ask. For example - I'm looking at 3BR/2BA in X neighborhood, thinking I need Y to fix and I estimate Z ARV. I want to do a buy/hold and cash-out when the house is done. Based on what I get back, I move forward or move on. That takes a day.

I am not sold on the cash deals only strategy.  Ideally I want all properties to be paid in full, but would prefer outside money to get there.  It can get uncomfortable at times especially when you have a bad tenant.

Lastly don't forget the A in the BRRRR. If you intend to rent start advertising as early as possible (house is habitable).

@Jeremy England I hope all your calculations are correct.

Keep us updated when you start to cash flow. 

In the future you should look for something that cash flows right away. You already maxed out your rent and your loan, what is the upside here?

@Jeremy England when you say Sofi loan do you mean the company SoFi? They prohibit your from using a personal loan for real estate. Did you just not care and do it anyways or is there a way around it?

Also man I'd be stoked leaving that much in a property. Seriously for a first BRRRR that's awesome. I'm sure you learned some and can kill it on the next

If the payments will be $450/month and it is renting for $1000/month; you still have a good cash flow.  I know there is insurance and taxes, but with $78K invested, you're at $6600 per year minus those costs.  I think that's pretty good.

Because BRRRR is a cute acronym that doesn't give the whole picture, another member has had to learn RO (Rip-Off fees) the hard way.

The other letter missing is the S for Seasoning. Lots of folks learn that one the hard way also!

Full proper acronym should be BRRSRORR, but it's not cute enough.   Spread the word.

Originally posted by @Cody DeLong :

@Jeremy England when you say Sofi loan do you mean the company SoFi? They prohibit your from using a personal loan for real estate. Did you just not care and do it anyways or is there a way around it?

Also man I'd be stoked leaving that much in a property. Seriously for a first BRRRR that's awesome. I'm sure you learned some and can kill it on the next

 I dont recall being prohibited.  But at any rate, once you have the money you can put it in whatever acct you want.  My money, there money. Whats the diff if its unsecured.  Ive been a good customer.  

Thanks. Im not negative on the issue. Just didnt exactly come out with no money in it. 

Im good with the cashflows and how much i have invested

Originally posted by @Steve Vaughan :

Because BRRRR is a cute acronym that doesn't give the whole picture, another member has had to learn RO (Rip-Off fees) the hard way.

The other letter missing is the S for Seasoning. Lots of folks learn that one the hard way also!

Full proper acronym should be BRRSRORR, but it's not cute enough.   Spread the word.

 Not necessrily.  I could have refinanced immediately with a commercial lender at 70pct. But that would be a 20 yr amortized loan with a 7 yr balloon.   So the cashflows wouldnt have been as good and with rates increasing, i would have had to refinance in 7 years.  

If i had expected that i would have planned for it.  Its another tool in the tool belt but in this project i wanted a 30 yr fixed

Jeremy,

Commercial loans dont have to be 20 year am, 7 year balloon. 

My Banker will do up to 25 years, prime plus 0.50%, 5/1 ARM, no balloon, 85% LTV, ~1% or less fees.

You could also do first position/purchase HELOC. Usually up to 70%, 10 year draw (interest only) then 15 year AM. Typically only costs an application and appraisal ($600-$700).

Call 100 banks if you have to and it only takes one to get the terms you need. Just explain you plan to bring them repeat business and dont sell them out over a point or half a percent down the road. Relationships go a long way.

Originally posted by @Jeremy England :
Originally posted by @Steve Vaughan:

Because BRRRR is a cute acronym that doesn't give the whole picture, another member has had to learn RO (Rip-Off fees) the hard way.

The other letter missing is the S for Seasoning. Lots of folks learn that one the hard way also!

Full proper acronym should be BRRSRORR, but it's not cute enough.   Spread the word.

 Not necessrily.  I could have refinanced immediately with a commercial lender at 70pct. But that would be a 20 yr amortized loan with a 7 yr balloon.   So the cashflows wouldnt have been as good and with rates increasing, i would have had to refinance in 7 years.  

If i had expected that i would have planned for it.  Its another tool in the tool belt but in this project i wanted a 30 yr fixed

Ok. So seasoning only required if you don't want crummy commercial terms... Or using the delayed financing exception of less of PP or 70% of FMV.

The seasoning S should still be in the acronym. Many are surprised by the 6 month requirement to get conventional financing based on ARV.

Originally posted by @Steve Vaughan :
Originally posted by @Jeremy England:
Originally posted by @Steve Vaughan:

Because BRRRR is a cute acronym that doesn't give the whole picture, another member has had to learn RO (Rip-Off fees) the hard way.

The other letter missing is the S for Seasoning. Lots of folks learn that one the hard way also!

Full proper acronym should be BRRSRORR, but it's not cute enough.   Spread the word.

 Not necessrily.  I could have refinanced immediately with a commercial lender at 70pct. But that would be a 20 yr amortized loan with a 7 yr balloon.   So the cashflows wouldnt have been as good and with rates increasing, i would have had to refinance in 7 years.  

If i had expected that i would have planned for it.  Its another tool in the tool belt but in this project i wanted a 30 yr fixed

Ok. So seasoning only required if you don't want crummy commercial terms... Or using the delayed financing exception of less of PP or 70% of FMV.

The seasoning S should still be in the acronym. Many are surprised by the 6 month requirement to get conventional financing based on ARV.

 I do agree there is little discussion about seasoning on the podcasts or articles.  

Can I be a newbie real quick? I've seen the term 'Seasoning' a few times now and I still don't quite understand what it means or how it works, nor did Google-All-Mighty really give me any good information at a glance.

Seasoning refers to the period (6 months) which fannie mae requires between when you purchase a home and when you may cash out refinance that loan.  This is only for fannie mae conforming loans, not commercial loans or other non-conforming loans.  BAnks usually deal in conforming loans but not always

The same thing happened to me also doing the BRRR strategy. I bought a single family for 102k and put 63k into it and it was appraised for 249k. I tried to pull all my money out but I couldn't because I had to wait a whole year to seasoned, but instead I was only able to pull out 80% of the cost of the house and rehab which end up being 129k, but after closing I end up getting back 122500, so I left 43k in the deal. The good thing is that my current tenant is paying 2200 a month in rental so I'm cash flowing pretty well, plus I pulled a HELOC off that house for 57k for my next project.

@Jeremy England - Congratulations on your deal. Going forward, is this the best you can expect to do in your market? If you can get a 100,000 Sofi loan, you must be doing very well personally. Try thinking outside the box in RE. My friend bought a 2000sf house in NJ for about 200k all-in near a college and gets $5000/mo (owner pays utilities) renting by the furnished bedroom to working professionals. borrowed 100% of the money at 7% from friends and family. So after taxes (600), utilities (900), and interest (1200), there’s still $2300/mo of cash to pay towards additional rehab / beautification and/or paying down the loan. Now this is more management (higher turnover) than a tenant who might stay in your house for the next 6 years, but could the cash flow be worth it?

Long story short you have a property with all of the deferred maintenance taken care of, rented to a good tenant,  and worst case you will have the money you invested into the project back in a year. That is a great deal in my opinion for a home that needed only $16k worth of work.

If you bought a home with all of the deferred maintenance done for you by the previous owner you would have had to put your 25% down and it would have taken you a lot longer than a year max to get your money back.

Keep your head up, getting all of your money back on a BRRRR is not the norm. Is it possible? Sure. Being out of pocket only closing costs is still great.

Originally posted by @Mary K. :

@Randy Janoe who is your banker that does 85%

 A Community Bank in western NC. If you are interested in using his services, I could see if he will entertain out of state deals?

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