BRRRR questions

7 Replies

Good day BP community,

I am interested in completing my first BRRRR deal, but I am uncertain on a couple of things so I will lay out the scenario below. House is appraised for 290k purchase price sjhould come in at 190k. 40k for rehab costs. I can rent both units for $2,500/month (total).

Has anyone used hard money loans for the cash source?  These are the hard money terms:

Loan Balance:$240,000.00

Loan Interest Rate:4.00%

Loan Term:2 years

Monthly Loan Payment:$440.33

Number of Payments:24

Cumulative Payments:$250,127.55

Total Interest Paid:$10,127.55

Note: The monthly loan payment was calculated at 23 payments of $440.33 plus a final payment of $240,000.00

Also, how can I guarantee that I can refinance after 2 years to a conventional mortgage? Or is that the risk side? Thanks BP community, just trying to figure out this BRRRR method and if it would help me with this deal.

@Adam Schellhammer , those terms don't sound like hard money terms. The hard money terms that a first timer gets could be in the 12% to 15% range with 5 to 10 points for a 6 month to 1 year term. 

To refinance into long term, most lenders will require a "seasoning" period where the property is rented and producing cash flow for 6 to 12 months. Having a lease in place is important to get that financing. The lender will also appreciate a W-2 Income. 

You need to determine how long your rehab will take, how long to get it rented, and then add 7 or 8 months to refinance. That will be your holding period. Also, you need to ensure that you don't have any prepayment penalties on the loan that you referenced in your post.

@Adam Schellhammer Does that hard money loan have a prepayment penalty? That is an interestingly low interest rate for hard money. Anyway, usually with BRRRR you are looking to refinance out around the 6 month mark (depending on your lender), so normally you'd get pre-approved with a conventional lender before you begin so that you have a decent idea if you can refinance at the end.

Being 2 years out, that's sorta tricky, and yes it sounds a little risky.  Those are great terms, but you may want to look at some 6-9 month loan term options so that you can cash out quicker and get to the Repeat 'R' faster. :)

BRRRR is new to me BUT I have my local bank's loan officer telling me that I can apply for cash out re-financing IMMEDIATELY...and it should take about 30 days...which is just enough time to find renters and rehab what I need to do! Look to your community bank, befriend the commercial loan officer, start an LLC and start getting commercial loans on your investments. If you can make it work...it lets you repeat repeat repeat!

Originally posted by @Meghan McCallum :

BRRRR is new to me BUT I have my local bank's loan officer telling me that I can apply for cash out re-financing IMMEDIATELY...and it should take about 30 days...which is just enough time to find renters and rehab what I need to do! Look to your community bank, befriend the commercial loan officer, start an LLC and start getting commercial loans on your investments. If you can make it work...it lets you repeat repeat repeat!

 Hello and welcome! It sounds as though your ended is the type of guy that is willing to do what it to be of service to you.  I am 59 years old and I found BP about 3 months ago and I am still learning.  I graduated from college and got a broker license in 1980.  I have been in the construction business since I was 17.  I am from and raised in Dallas Texas.  If you think I can be any help to you please contact me at any time.  Beware of the lender and check him out. You don't want to end up sorry.  Good luck!

@Adam Schellhammer

Hi Adam, 

Missing to the equation are your 'out of pocket', down payment, taxes, lawyer costs, insurance, closing cost, points and other assorted fees. These costs are very different from state to state. For example I don't require a lawyer to close in Texas. In NY and NJ you do.  

You can use one of the BP calculator to give you an idea of what the deal is looking like. If you want to hit me up privately I'd be happy to work the numbers with you. In doing so my request is you post the findings here for all to benefit. 

Typically a HML will go 70% of ARV. With the place appraising at 290K they should be lending in the 203K range. Your loan balance is 240K which puts your loan to value in the 83% range.

I'd be leary of anyone lending more than 75% LTV. Going too high makes it costly to refi. A shift in market value could leave you stuck in a undesirable loan. Most conventional lenders want to see you in at least 25% on an investment property. Now there are always exceptions just this is the typical I've seen. This is why going more than 75% is risky. If this is to be a homestead the LTV values change to 80/20.

As far as guarantees go in investing there are none. Making well informed choices and having reserves for when things don't go as plan is how you mitigate risk.  Consider if the market shifted against you 2 years from now at refi you would need to come with funds to the closing table.

Originally posted by @Meghan McCallum :

BRRRR is new to me BUT I have my local bank's loan officer telling me that I can apply for cash out re-financing IMMEDIATELY...and it should take about 30 days...which is just enough time to find renters and rehab what I need to do! Look to your community bank, befriend the commercial loan officer, start an LLC and start getting commercial loans on your investments. If you can make it work...it lets you repeat repeat repeat!

Is that refi on LTC or ARV? Sounds like it's a commercial product?

I too can refinance immediately. No seasoning. Broker. 70% ATV.  4.25   Freddie loan.  It may depend on the area. I do have a very nice W-2 to sweeten the pot, not sure if that is why. I can tolerate a 100% vacancy on all 8 boxes and make mortgages. I am curious as well why 6 month seasoning is so popular with folks on here. I will ask my broker if it has to do with my W-2 etc.... or if it is available for investors with less income. Very interesting.