Refinance in this economic climate?

[Phil Salazar]

I am looking to do a BRRRR and wanted to get some feedback from local active investors. Are banks lending currently on investment properties in MD?

In February of this year, right before the Pandemic hit, I just bought a Duplex in the same neighborhood of the target property, using my VA Loan. Currently, I am living in one unit and renting the other and my overhead is $400 per month. The target property needs lots of work but seems like it could work.... Here are the numbers. 2800 sq ft 3 unit house. 6 bedrooms 5 bathrooms. ARV of property: $340,000 - $360,000 Needs about $150,000 in repairs and upgrades. Purchase price: $140,000. My goal is to fix up, rent it out get reappraised then pay back private lenders (family members) and roll it in to a conventional loan. My question is, how is this strategy possible in light of the Pandemic and economic climate at this point? Any input/ real life experience would be gratefully appreciated.

[Tom Shallcross]

Hi @Phil Salazar - I can't comment on the MD specific lending, but a quick note on the numbers.  

At the purchase of 140k and rehab of 150k, assuming rehab holds true, you're at 290k before holding and closing costs. Holding costs + closing cost will be another 15-25k, so you're all-in for let's say 310k.  

You're most likely not going to find a lender to go more than 75% on an investment property today. So at an ARV of 340k you will get a refi loan amount of (340*.75) 255k, leaving you still 55k out of pocket (310k-255k).

If your goal is to use private money and pay it all off, you'll need a larger spread in all-in costs vs appraised value, or morph this into some type of househack/personal residence where you can achieve a higher LTV on the refi.