How many BRRRRs are you doing at once?

Question

I've never really "BRRR'd" I'm in the position to do so now with a free and clear property, however I'm concerned about having too much debt. If I pull most of the equity out of an existing property and get a 15-30 yr mortgage, how do I pay it off to invest in the next property? I don't want to have multiple loans esp not HMLs out there to build a portfolio that will put me in bankruptcy. I come Dave Ramsey beliefs somewhat but I now better understand the leverage with refinancing.

Michael Smythe · Answer

Your best rates will be FNMA mortgages, but you will have to qualify & sign personally. FNAM is also 30 year fixed, so stable payments (other than taxes & insurance).

You mentioned 15 or 30 year mortgage.

We always recommend 30 year because:1) Better cashflow which allows faster portfolio growth2) Lower debt payments, so you have flexibility to ride out any difficult financial times (you can always pay more to payoff in 15 years).

Andrew Postell · Answer

@Terri B. if you own a free and clear property there are several strategies to implement:

1. You can use your existing funds to rehab the property and NOT refinance - This will keep the property free and clear and your income can be used to purchase your next property.  Meaning, saving the income every for several months...you'll have enough to buy another property.  This is assuming you have enough existing funds to rehab the property.

2. You can use a loan to ONLY rehab the property - this strategy means you keep your current, existing funds and use a smaller loan to rehab the property.  In this scenario your "cash flow" will be lower than #1...but now you use those current existing funds to buy your next property.  You can of course use that cash flow to save each month for the next property.

3. You can fully REHAB and then REFINANCE out a larger portion - in this scenario, the refinance step would be a "cash out" loan.  Meaning, you get an actual check to go use.  The cash you pull out at refinancing will give you the necessary cash to buy your next property.  In this scenario, you will cash flow less though...but you can buy another property right away type of thing.

4. After REHAB you REFINANCE the max amount - this scenario gives you as much as you can to go buy other assets.  This scenario you may not cash flow at all...so this one may not be as fitting for you based on your initial post.

Likewise, I've been doing this for 20 years.  I try to only do 1 BRRRR property at a time.  It's a lot of work.  And I have a regular job too.  If this is your first one, I would highly suggest taking it one at a time.

Hope all of this helps in some way.  Ask away if you need anything else.  Thanks!

Jeremy Horton · Answer

1) You'd do a cash-out refi into a conventional/DSCR loan. How would you pay this loan off? You won't - your tenants will. Imperative to run solid numbers here and leave enough in the property so that it will cashflow. You always want to leave the minimum in the property while still cashflowing. If it's an expensive house and won't cashflow then it'd move into the "flip" category and you'd sell it. Most houses don't make good rentals

I've had up to 3 "BRRRR"s going on at once - It's a bit much for me personally. With work/family and RE being only PART of my portfolio (My W2 has literally zero to do with the RE industry so I'm not dealing with it on a day to day like a lot of people do). I'm comfortable doing a few a year however they fall

For me personally after I buy/rehab I'd do a cash-out refi and usually end up all in at 75%-85% of the appraisal value. Most loans will give you 75% LTV, so I usually end up with 10%-ish left in the property. This is good for me since it's still a lot less than it would be buying the property turnkey and putting 20-25% down.

Here lately I've been financing the property with a DSCR/conventional loan, putting the 20-25% down, completing the rehab (10-20k usually) and renting it like that. Leaves me with a good chunk of equity and I'm still completing the buy/rehab at a MAX of 85% of the ARV.

All this being said - yes you'll end up with a lot of loans. This is the beauty of real estate - you can leverage. As long as you are buying in a great LOCATIONS your place should rent no problem. As long as you do your DUE DILIGENCE and run good numbers and ensure great cashflow (after all expenses) you'll be good to go.

Now Dave Ramsey is another story...I like Dave Ramsey but if you have a little financial sense and can make decisions regarding budgeting you're way past the level he preaches about

Terri B. · Answer

Thanks @Alex Hunt. This makes sense. Are lenders concerned about the number of other open loans at once when short term or DSCR based? Do you lend in Michigan? I have a quote at 11% and looking for something better. Have 2 deals I'm considering. One is a cash out and other purchase and rehab.

Alex Hunt · Answer

All depends on what you can handle, some borrowers do 1-2 at a time, some do 20. When doing value add, you really have to make sure the ARV is accurate so you can properly refinance upon completion. Also important to either have the refinance lender lined up or a lender that does both fix n flip and DSCR. The cashout refinance you would do, depending on what lender use the tenants pay the mortgage as best rates are in the 1.10-1.20 DSCR range so you won't be under water. Rates are very high currently and they will come down, once they do refinance and you will have more positive cashflow per month, put that towards the principal or save it to start a new project and keep flipping, if you have trouble renting then sell and move the funds onto the next deal.

Happy to connect if you want to send a PM.

Terri B. · Answer

Thanks for taking the time to break down these options Andrew.

How many BRRRRs are you doing at once?

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