BRRRR problems
Hi creative real estate investors. I am trying to pursue the BRRRR strategy for both single family and a multifamily 4 plex here in Salem, Oregon, but am running into the refi issues. I'm wanting to pay cash for a property, fix up, but lenders are telling me they can only loan up to the initial purchase price (assuming it is only up to 70% apprased value), even if the appraisal comes in well over that. So I'm still left with cash in when the refi takes place. Has anyone successfully used this method and gotten their cash back? I'm all ears.
Do you have a lender that will work with you to get purchase AND rehab costs back at refi? Thanks.
yes the bigger banks will only loan 70% of purchase price. Find a small bank and they should do a cash out refi for 70-75% if appraised.
CMG Financial is who we used. Give them a call.
For example I bought a foreclosed townhouse for 44k. Put 35k into all cash so own free and clear. All in for 79k and appraises for 125k. Big bank will only cash out refi 34k, 70% of original purchase. Small bank will cash out 93k...75% of appraised value.
I think you have to actually own the property so many months before you can cash-out refinance. I think it's 6 months.
It took 3 months for rehab and now tenant has moved in; so going on 4 months since purchase, but they didn't ask how long I have owned it. Every bank/lender is different though.
@Tim Richardson the term you should be using when talking with conv lenders is "seasoning". How much seasoning is required to base LTV off of appraised value rather than purchase price? 6 months seasoning is common. Some places will want 12 mos seasoning.
I'm going to trust you on this. But if I end up having a conversation about Tony Chachere's, it's your fault.
Originally posted by @Justin Fox:
I'm going to trust you on this. But if I end up having a conversation about Tony Chachere's, it's your fault.
That's a good one.
Most banks require seasoning on title before they loan on full appraised value. Some banks will require 3 months while others longer. Check around for seasoning requirements for the banks you research.
I have done this in salem and you will need the property to season for 6 months before you can refinance you money out. After 6 months they will loan 75% of appraised amount.
Thank you. Can I ask which lender you use?
Landmark professional mortgage. They are brokers. I have used them to do several Brrr.
Hi Tim, congrats on taking action and working out this temporary hurdle. As far as I know, mortgage banks other than private lenders are required to have the property season 6 months before an appraisal is worth anything, otherwise rely upon purchase price. I bought a home at auction in October '15 for 19K, had 17K or rehab, and am now going through appraisal process with Royal United. They'll lend at 75% of appraised value (est. 60-80K) and we're looking to close in a couple of weeks @ 5%/30 year fixed. If you have more experience like Brent with a lender (local banks/credit unions seems to be best) you have worked with before, they may give you the benefit of the doubt and lend at appraised value 3 months after acquisition, especially if part of a portfolio loan package. Best of luck!
@Tim Richardson, your situation sounds very similar to this thread:- https://www.biggerpockets.com/forums/223/topics/30...
You might like to message Aron Cohen to find out which Lender has approved a higher cash out than the purchase AND rehab costs, without seasoning being required.
But if you want to do it via conventional Lender, I am not surprised to hear that you are being limited to 100% of purchase price only.
The only way I can think of "getting around" that delayed financing provision in the way you want is to also pay cash for the rehab in advance so that the contracted purchase price INCLUDES the rehab. [Not official borrowing advice]. Cheers..
Originally posted by @Tim Richardson:
Hi creative real estate investors. I am trying to pursue the BRRRR strategy for both single family and a multifamily 4 plex here in Salem, Oregon, but am running into the refi issues. I'm wanting to pay cash for a property, fix up, but lenders are telling me they can only loan up to the initial purchase price (assuming it is only up to 70% apprased value), even if the appraisal comes in well over that. So I'm still left with cash in when the refi takes place. Has anyone successfully used this method and gotten their cash back? I'm all ears.
Do you have a lender that will work with you to get purchase AND rehab costs back at refi? Thanks.
If you are using a conventional loan, there is usually a seasoning requirement before you can refinance based on ARV. It can vary from bank to bank but 6 months is a common requirement.
Originally posted by @Frank B.:Originally posted by @Tim Richardson:
Hi creative real estate investors. I am trying to pursue the BRRRR strategy for both single family and a multifamily 4 plex here in Salem, Oregon, but am running into the refi issues. I'm wanting to pay cash for a property, fix up, but lenders are telling me they can only loan up to the initial purchase price (assuming it is only up to 70% apprased value), even if the appraisal comes in well over that. So I'm still left with cash in when the refi takes place. Has anyone successfully used this method and gotten their cash back? I'm all ears.
Do you have a lender that will work with you to get purchase AND rehab costs back at refi? Thanks.
If you are using a conventional loan, there is usually a seasoning requirement before you can refinance based on ARV. It can vary from bank to bank but 6 months is a common requirement.
Frank, that's what I originally thought too, UNTIL I learned about the "delayed finance exception". If you've paid all cash, and the purchase price is no more than 70% of appraisal, you can get back 100% of your cash purchase price without waiting six months!
https://www.fanniemae.com/content/guide/selling/b2...
..."The new loan amount can be no more than the actual documented amount of the borrower's initial investment in purchasing the property plus the financing of closing costs"...
@Brent Coombs That's true, but you only get your purchase price back out, not your rehab costs. All I'm finding is that there is a 6 month requirement to get purchase price AND rehab costs back out.
Originally posted by @Tim Richardson:
@Brent Coombs That's true, but you only get your purchase price back out, not your rehab costs. All I'm finding is that there is a 6 month requirement to get purchase price AND rehab costs back out.
True. (Apologies to @Frank B. Yes, conventionally, the rehab part needs seasoning). 100% delayed financing works best if there's NO rehab required. Did you contact @Aron Cohen? Cheers...
This is my lender and who I strongly recommend for non owner financing and utilizing the BRRR method. If you refinance under 6 months you are able to use ARV but you can't get more then your cost back out which is what you are trying to do anyway and it has to be within 6 months of ownership. If you go past 6 months you have to wait until the first year of ownership. Cost is Purchase Price + Rehab usually verified by your scope of work.
Steve Bighaus
Loan Officer NMLS 112825
SecurityNational Mortgage, Inc. NMLS 3116
1604 Hewitt Ave, Suite 703
Everett, WA 98201
@Dustin Ruhl Thanks for the referral. I'll definitely give him a call.