Cash-out refi details

Real Estate Agent · Puyallup, WA · Member since 2022 · 551 posts · 378 votes

2y

Yes. This is exactly what you do. You can find more info on it all around, known as "BRRRR" strategy. The point of the BRRRR is to pay off your HML/PML and HOPEFULLY get a little extra in your pocket your next purchase.

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Nate HerndonPro Member

Lender · Springfield, MO · Member since 2023 · 277 posts · 195 votes

2y

Quote from @Austin Ralls:

My main strategy has been fix and flips and I've built up enough cash and relationships with private lenders that I want to start getting rentals added to my portfolio and investing strategy. With that said, refinancing the loan is bringing a whole new vocabulary and I'm wanting to get some clarity even though I know this will be looked at as a dumb question.

When I finish with my remodel and I'm going to refi the property and I want to do a cash-out refi, will they give me cash proceeds if I refi at the 75% and its more then what I owe my HML?

So if I have $65,000 invested in the property and its arv is 100,000 will i be able to get that additional 10,000 in cash proceeds as part of my "Profit" or is it only allowed to cover what other loan is on the property? Again, I know this is probably a dumb question because the answer is within the question, but I want to get clarity before I just push all in on this model.

Thanks!

Hey Austin, you nailed it. 75% LTV on that $100k property would cover your payoff and give you $10k to cover down on closing costs. Let's say your payoff was $70k instead, an 80% LTV rate/term refinance (or no cash-out refi) would be possible; that would still cover down on the payoff and closing costs. Typically your max LTV for cash-out will be 75%, while 80% is available for limited or no cash-out. Whatever funds remain after the payoff + closing costs are covered is yours to take home.

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Devin PetersonBusiness Member

Lender · Sarasota, FL · Member since 2022 · 2k+ posts · 664 votes

2y

Not a dumb question! and you are right on the money! 75% of the 100k ARV will cover it all plus any additional funds back into your pocket to keep the snowball rolling down the hill.

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James Montaney

Member since 2024 · 3 posts · 5 votes

2y

That's exactly how it will work if all the stars align perfectly and your credit is top tier. Experience has shown that it is a rare situation where the hard numbers, the underwriting, and the projected income stream support that added cash distribution to self in this market. My experience says less than 20% of the time.

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Steven Goldman

Lender · PA · Member since 2019 · 533 posts · 461 votes

2y

Quote from @Austin Ralls:

My main strategy has been fix and flips and I've built up enough cash and relationships with private lenders that I want to start getting rentals added to my portfolio and investing strategy. With that said, refinancing the loan is bringing a whole new vocabulary and I'm wanting to get some clarity even though I know this will be looked at as a dumb question.

When I finish with my remodel and I'm going to refi the property and I want to do a cash-out refi, will they give me cash proceeds if I refi at the 75% and its more then what I owe my HML?

So if I have $65,000 invested in the property and its arv is 100,000 will i be able to get that additional 10,000 in cash proceeds as part of my "Profit" or is it only allowed to cover what other loan is on the property? Again, I know this is probably a dumb question because the answer is within the question, but I want to get clarity before I just push all in on this model.

Thanks!

Congratulations on successfully flipping! BRRRRing is a different animal. In todays market when you BRRRR you can expect to leave some of your money behind in the property. The higher interest rates and lower LTV (75percent) have made a cash out refinance on a BRRRR more challenging.

Another limiting factor on obtaining cash out on a BRRRR is the rent. You rent must support the payment including principal, interest taxes and insurance. That is the debt service coverage ratio. Debt service coverage ratio is determined by dividing the monthly rent by the payment including principal interest taxes and insurance. A minimum of 1.0 is usually necessary. the better the debt service coverage the lower the interest and the higher the loan amount.

So do not start BRRRRing if you do not have enough money to leave some of your investment behind in the property you are refinancing. On occasion you will hit a home run but do not expect to be a 50 home run hitter. Remember you will not only have the purchase price, lenders fees carrying costs and settlement charges from the purchase but you will have also have lenders fees and title insurance from the refinance. Good luck!

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Robin SimonBusiness Member

Lender · Austin, TX · Member since 2022 · 5k+ posts · 4k+ votes

2y

Quote from @Austin Ralls:

My main strategy has been fix and flips and I've built up enough cash and relationships with private lenders that I want to start getting rentals added to my portfolio and investing strategy. With that said, refinancing the loan is bringing a whole new vocabulary and I'm wanting to get some clarity even though I know this will be looked at as a dumb question.

When I finish with my remodel and I'm going to refi the property and I want to do a cash-out refi, will they give me cash proceeds if I refi at the 75% and its more then what I owe my HML?

So if I have $65,000 invested in the property and its arv is 100,000 will i be able to get that additional 10,000 in cash proceeds as part of my "Profit" or is it only allowed to cover what other loan is on the property? Again, I know this is probably a dumb question because the answer is within the question, but I want to get clarity before I just push all in on this model.

Thanks!

Hi - check out this article published on BiggerPockets on this exact topic - options for financing BRRRR method and pros/cons of each!

https://www.biggerpockets.com/blog/brrrr-loans-what-are-the-...

The BRRRR method of real estate investing continues to be one of the most-used strategies in 2023. With interest rates elevated yet property values remaining resilient, finding cash flow with a reasonable down payment is an incredible challenge.

However, the BRRRR strategy (buy, rehab, rent, refinance, repeat) makes sense for a lot of investors, as value can be created through forced appreciation (renovations) and capital recycled through cash-out refinances. With rates high and competition fierce, nailing the financing piece of the BRRRR method has never been more important.

This article will explore the loan options facing BRRRR strategy investors, with a focus on the all-important third R: refinance. Specifically, we’ll compare DSCR refinance loans to traditional options, namely bank or conventional loans.

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Jake BakerBusiness Member

Flipper/Rehabber · San Diego, CA · Member since 2020 · 1k+ posts · 695 votes

2y

@Austin Ralls

Yes, when you refinance out more than what you owe on the previous loan and enough to cover your holding costs, that is a "perfect brrrr". Not as common in this market but always great to get those.

Here are a few nuances to be aware of with the BRRRR method:

1. Most conventional loans have a seasoning period of 6 months.

2. If you refinance into a DSCR loan, there will be 1 2 or a 3 year prepayment penalty. Make sure these play into your goals.

3. Shop a few lenders to see what kind of loan products they offer. Some offer different products.

Happy investing!

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Cash-out refi details

Cash-out refi details

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