Plan on buying my first property a 1-4 unit (FHA Rules) and occupying one of the units my self,(again fha rules for one year) but do plan on using the brrrr method to finally get my start. Now obviously FHA due to the 3.5% down payment.
Is this possible? Bad idea?
Would the refinance work the same, just refinance over to a conventional or how would that work?
I understand what I make on the property would not be a huge gain to continue on, but to get my first property and my foot In rental real estate/management.
If not, ideas and how on getting the huge sum for that additional down payment.
Being that I have never taken any loan, except student, wouldn’t banks be more reluctant To loan to me?
@Brooke Reeves I'd consider an FHA loan to get you in. Then do your renovation. If you can increase the value enough, the refinance will be worthwhile. It'll remove your PMI requirement. I doubt you'll get much cash out (since the refi will need 20% down
Or you can look into a HELOC instead. Lower closing costs and gets you cash for your next deal.
Going to be tough to refinance on a FHA. You either need to find a really great deal, force appreciation through renovations or wait out market appreciation.
If the bank offers you 75% LTV and you have 3% in on an FHA loan you won’t be approved for a cash out refinance.
Using an FHA loan is still a good idea. You should find a great deal, force some appreciation through renovations... upgrades to mechanical systems, roof, cosmetic improvements, then refinance.
Force appreciation would be the way to go to cash out refi on a FHA loan. Another great option to look in to if you will be making any repairs and renovations is the FHA 203K renovation loan. If you are approved for a FHA loan you will be approved for the FHA 203k they have the same requirements. The beauty in this loan is that the renovations will be wrapped into the one mortgage.
Hi Brooke. My sister bought her first duplex with an fha loan last year and currently looking for her second. We are buying them together and doing the BRRRR method a little different. After closing she lived in the lower unit and updated it. Then when the lease was up for the upper unit she moved up there and rented the lower unit for $1,005. She is in the process of updating the upper unit now. It was renting for $550 and she will now be able to rent it for $750. Her mortgage payment is $1,045 with escrow and total rent income will be $1,755. We are searching for her second house to buy with the fha loan since it has been a year for her to occupy the first one. She isn't pulling any money out by refinancing but has easily been able to save money by only paying a small portion of her mortgage which will pay for another 3.5% down payment on house 2. Now she will have cash flow from house one when she has both rented. I would suggest to do something similar and just keep taking advantage of the FHA loans to accumulate your properties instead of pulling cash out with refi's. Good luck on your first purchase!
Make sure you know your numbers. If you use FHA and are planning to refinance into conventional after the rehabs make sure you are still cash flowing. It might make more sense to flip the property instead of refinancing, and then using that profit to go out and BRRRR.