Originally posted by @Victor Spencer II :
For the BRRR strategy when you go to refinance do you have to put a down payment for the refinanced loan?
Not if you do it right, no.
@Victor Spencer II , if Chris's response left you with more questions, you've got more reading to catch up on.
The idea is to buy a property with cash (or hard money), rehab it to increase the ARV (after repair value), rent it out, refinance, and repeat.
1. Purchase Property for $100,000
2. Rehab Costs: $50,000
3. After Repair Value: $200,000
4. Refinance at the new value (this will require an appraisal). Depending on your bank/lender, loan-to-value (LTV) may be different. Assuming 75% LTV, you will get $150,000 back from the refinance.
5. Repeat the process.
Net down payment = Initial Purchase + Rehab - refinance amount
= 100,000 + 50,000 - 150,000
@Victor Spencer II most investing experts will advise you to be prequalified before even buying a home with a hard money loan. Some hard money lenders will even make that a requirement too. This is important because you can technically refinance up to 85% of the value of the property with a "conventional" loan (a loan governed by Fannie Mae and Freddie Mac). Since most hard money lenders will grant you 70%-75% "loan to value" on their loan, this should allow ample room to refinance without any additional costs. I hope this helps some but feel free to ask more questions if you need.
@Jordan Han , now you've gone and spoiled it, by providing a BRRRR "cheat sheet"!
@Brent Coombs too bad the hard part is actually putting it into action
I am in the middle of flipping my first house and im looking to buy and hold as part as my second investment and looking for another flip.
@Andrew Postell I am pretty sure you helped me answer the question. With a hard money loan I can pull enough money out to buy the house, rehab the home, and have enough to refinance the house after I rent it out. Which would consist of me getting a conventional loan from a bank at whatever % down to refinance the home.
thanks for that info that helped as well. I've watched many videos on this strategy I am just now in the position where I can actually do it for my first time and I have a duplex I'm already looking at that I want to do it with.
@Victor Spencer II if you are buying a home with hard money, then you want to keep it you will need to refinance that hard money loan. The hard money loan is a temporary loan and at a high rate. So we can't stay in that loan for very long. If the hard money lender will lend you 70% of the After Repair Value (ARV), you would then wrap the closing costs of your new conventional loan refinance. The conventional loan can go up to 85% of the ARV...but not with taking cash out. Your "down payment" money with the hard money lender would be anything over 70%...since that is their limit. You would not have any down payment money with the refinance since we would wrap the costs into the loan...as long as the home appraised for the value you were thinking. Hope this description helps but feel free to ask more questions.
@Andrew Postell wrapping the costs into the loan when I refinance I think pretty much answered my question. I didn't know you you were able to do that when you refinance. I think my next step now is to talk to some local banks from what I hear about their refinance policies to see who will be best to work with.
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