BRRRR Method

54 Replies

Who here uses the Buy, Rehab, Rent out, Refinance, and Repeat stategy and how many properties do you currently own?

I do...and only my lawyer and accountant know the number...and I plan on keeping it that way.

I'm currently in the 'Rehab' phase on two properties and I plan to use this strategy for both. I was considering flipping one of the properties but after doing the math it just doesn't seem to make sense. 

My biggest impediment right now is getting around the 6 month seasoning guideline for refinancing. If I can find a bank which will do a cash out refi inside of 6 months this loop becomes much shorter. (Tips appreciated!) Note: I purchased both with conventional loans. 

Of course, I can use other sources of capital as a bridge for 6 months, but they are more expensive.

Yeah the cash-out refi is generally the only obstacle in BRRR, but you can try other banks. However, yes the seasoning is an issue. If you're just starting out it might be a bit safer to do one at a time to be sure that you can do the refi. Otherwise, it is a good market for flipping in general right now with prices climbing.

Get a Line/loan of credit with minimal payments and a balloon in 5-7 years.  This gives you all of your cash back to move forward....and should happen in a very short (30 days or less) period of time.

In 6 months refinance. Payoff the LOC, and keep the "cash out".

I use this method for most of my acquisitions.

My own cash, line of credit, private party and temporary financing make the acquisition.  Once I get 10-20 properties stabilized I will refinance them to long(er) term commercial financing (as a package), I usually have 1 or 2 package refinances in process at all times.

Best method ever. Every so often the bank pre-pays me to buy a positive cash-flowing house.  

One very good tip for this method.  

There is a big difference to banks between "cash-out" refinance and a "rate-and-term" refinance.   So it might be smart to put loans on properties above your total cost (possibly "friendly" loans) to make sure you don't get any cash out upon refinance.  

I am just beginning to use this method (transitioning from doing flips to get me DP money to buy a rental) and have just made an offer on a property and plan to get it rehabbed and rented ASAP. My only 'variation' on this is that I want to free my capital up ASAP so I have created a small network of friends/colleagues that like to do short term trust deed loans (12month @ 7%).

I will essentially buy, rehab in cash, then put that TD loan in place and wait my 1yr seasoning before I refi into conventional via a rate and term refi. In order for this to work you need to get a solid deal so you can be cashflow positive while carrying the higher interest rate in year 1. Harder but doable and then years 2+ get a nice little bump in CF.

I have created a calculator to help me quickly analyze a property and will share it in the forums shortly. It is a BRRR specific calculator and I hope it is helpful. I will follow up with a post here once I get it scrubbed/uploaded.

Originally posted by @Joe Villeneuve :

Get a Line/loan of credit with minimal payments and a balloon in 5-7 years.  This gives you all of your cash back to move forward....and should happen in a very short (30 days or less) period of time.

In 6 months refinance. Payoff the LOC, and keep the "cash out".

 @Joe Villeneuve we discussed this a few months back. I had a very hard time finding anyone to offer a line of credit on a non-primary property without the 6 month seasoning requirement, and I must have called over 100 institutions easily. Are you just suggesting getting a loan for the initial 6 months before the refinance? Have you actually seen credit lines being offered against non-primary residences without seasoning periods? Thanks in advance

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I have created a post with the calculator. I hope it is useful. See details here

Originally posted by @Bryan Loveless :
Originally posted by @Joe Villeneuve:

Get a Line/loan of credit with minimal payments and a balloon in 5-7 years.  This gives you all of your cash back to move forward....and should happen in a very short (30 days or less) period of time.

In 6 months refinance. Payoff the LOC, and keep the "cash out".

 @Joe Villeneuve we discussed this a few months back. I had a very hard time finding anyone to offer a line of credit on a non-primary property without the 6 month seasoning requirement, and I must have called over 100 institutions easily. Are you just suggesting getting a loan for the initial 6 months before the refinance? Have you actually seen credit lines being offered against non-primary residences without seasoning periods? Thanks in advance

 Yes.  I have access to three in my area.

would this strategy work for buy and hold on properties that may not need to be rehabbed and have very little necessary repairs? 

Originally posted by @Wayne Mack :

would this strategy work for buy and hold on properties that may not need to be rehabbed and have very little necessary repairs? 

Yes it can. The last 3 houses I did this on had no rehab. It all comes down to making sure all of your costs can be covered by cash, and that total cost is less than the % of ARV you can get refinanced.

@Joe Villeneuve That's cool! That actually makes me feel good moving forward because I couldn't figure out how to make the numbers work but that's great to hear. A seasoned investor that has done it multiple times. 

What is the typical ARV percentage banks will finance?

I just closed last week on my first property, and am hoping to use the BRRR method eventually. The problem I think I will have is that I financed it through a portfolio loan, and put it in the name of my LLC. With the portfolio loan, I have to keep it for 2 years or I'll have to pay back all the closing costs that the bank paid for me.

Two years is not really a long period of time.  I'll finish rehabbing the place and get a renter established, then after 6 months or so I will go back to the bank and see if it will be allowable to do a refi and cash out some of my equity without triggering the repayment of the closing costs.   I want to use this particular bank again through another portfolio loan to purchase my next property.

Originally posted by @Wayne Mack :

@Joe Villeneuve That's cool! That actually makes me feel good moving forward because I couldn't figure out how to make the numbers work but that's great to hear. A seasoned investor that has done it multiple times. 

What is the typical ARV percentage banks will finance?

 75% is pretty common.

My credit Union unfortunately has decided that the 100% Refi's are against their policy and now require the 20% down payment on my future properties. I have talked to about 20 banks so far and haven't found anyone willing to do even a 75% refinance within a 1 year period of closing. Have others still found luck being able to refinance inside a 2-3 month period with the banks ignoring the initial purchase price??

Unfortunately, lenders don't use the usual logic of supply and demand when setting their policies.  That's because they don't operate using the same business methods.  Their business is selling leveraged credit.  That means their product comes from their investments. So, when they have a portfolio imbalance, meaning they have a product that is flying off the shelf, unlike a normal business, they look at this as a problem since their sales have become too dependant on one source.  They have to be balanced, so they balance it much like Vegas does.  They change the terms to force a balance of interest.  This way, Vegas doesn't lose, and in the case of the banks, if a source goes "south", they don't collapse.

Long way of saying what you are looking for will come back...you just have to wait for it.

Originally posted by @Joe Villeneuve :
Originally posted by @Wayne Mack:

would this strategy work for buy and hold on properties that may not need to be rehabbed and have very little necessary repairs? 

Yes it can. The last 3 houses I did this on had no rehab. It all comes down to making sure all of your costs can be covered by cash, and that total cost is less than the % of ARV you can get refinanced.

 Hi All,

I just completed my first BRRR and before I add another R to the acronym, I wanted to point out one thing to be aware of using this system. Your rents! Make sure they are based on the best case scenario ARV and that you will still cash flow if you have to come down for any reason.

For instance, After the rehab, the ARV was 82K ( I started on a small house). Well I went out at 950/mo initially and had to drop to 895 after a month to get it rented. Now because of that fat cash-out refi, I have a larger note to pay and the property doesn't cashflow like I'd hoped. Yes, I got most of my cash back out of the deal but it's a bit skinnier than I'd like.

Cheers,

Tom Camarda

Add the cash flow from the 2nd use of the same funds (refi) to the first, and if you are ahead of where you were before you refi'd the first one, then you did it right.

I don't do REFI's unless I can at minimum hit the 2% rule with the higher mortgage. I'm about to refinance our 8th and 9th BRRRR house next week and ensure I don't go over $45K if the rents are $900/mo

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@Chris Heeren

With delayed financing, you can do up to ten conventional, and pull out a maximum of purchase price plus closing costs in the first 6 months of you originally paid cash. You can also rate and term refinance up to ten mortgages, with no seasoning. 

Originally posted by @Joe Villeneuve :

Add the cash flow from the 2nd use of the same funds (refi) to the first, and if you are ahead of where you were before you refi'd the first one, then you did it right.

Totally agree with Joe. To expand upon this a little,  we are talking about arbitrage.  This is when you borrow cash at one rate and invest it in order to make a higher rate. The 'extra'  equity and loan amount will hurt your cash flow for that property but what if that' extra' was $10k that you were able to use your buy a note that returns 13% annually. If the borrowed cash was 5% that 13% return is really yielding you 8% on that equity. Arbitrage.

With that stated, this gets dangerous if the investments are riskier and you are over leveraged on the property. This happened in a bad way in 2007/2008 when banks were handing out super cheap HELOCs with LTV up your 110% (stupid..) then people bought properties that were risky (no cash flow and hoping for appreciation)or worse boats/atvs/etc, and then their houses went down.

If this extra MO ey is coming at 75% of LTV and you invest it wisely (notes, more RE, use instead of HML) then arbitrage can be gr

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