Doing a BRRRR! Should I keep receipts of materials?

Question

Hey everyone!

So doing my first BRRRR. Project is about a month out from completion so I’ve been thinking about the refinance part of it.

The contractor has been giving me final receipts. Meaning they buy the materials and provide the labor and then make a receipt showing the total. Just wandering if I need to provide copies of receipt for the actual materials (example pitching cabinet purchase) or is the builders receipt enough when doing a LTC refinance?

River Sava · Answer

Hey Shonari,

Congrats on your first BRRRR! Every lender is different. Are you currently working with one? If so, check with them / other lenders to see what they require.

Jake Forehand · Answer

I would check with your lender to see what their requirements are, but yes, they will probably want to see builder's receipts and all material receipts.

Stacy Raskin · Answer

Depending on when you refinance, the receipts might be needed. You can get a cash out refinance with the new appraised value after three months of your last purchase and loan depending on the state (lenders are licensed state by state).

More info on a DSCR loan in case helpful. This is for purchases or refinances.

DSCR loans won't use your income to underwrite the loan.

DSCR loans are based off of down payment, credit score and either actual or market rents so it helps to supercharge an investor's real estate goals and net worth.Here's a bit more in detail about how rates are calculated for DSCR loans:1. Credit score- the higher the best. 760-780+ generally gets best pricing for investment property loans with most lenders. From there every 20 point increment affect pricing differently. So for example, a 761 credit score will be in the 760-779 credit category, then going down to 740-759 and so on.

2. Loan to value ratio: The higher the loan to value ratio (LTV) is, pricing takes a hit. So your pricing will be higher for a 80% LTV loan than for a 60% LTV loan.3. Prepayment penalties- usually 1-5 year terms. The shorter the prepayment term has an impact on increasing the rate.4. Are you cash flowing the property? More on how that is calculated below. Is your DSCR ratio greater than 1-meaning are you cash flowing (according to the lender's criteria of mortgage, property taxes and insurance (and HOA) if applicable). Many lenders will not do a DSCR loan unless cash flowing. If they will do a loan with less than 1, the pricing takes a hit. This criteria is for 1-4 and 5-8 unit programs.I've included an example below to help illustrate this.So different lenders have different rates (which do vary even for DSCR loans) but these are factors they all consider.See example below:DSCR < 1Principal + Interest = $1,700Taxes = $350, Insurance = $100, Association Dues = $50Total PITIA = $2200Rent = $2000DSCR = Rent/PITIA = 2000/2200 = 0.91Since the DSCR is 0.91, we know the expenses are greater than the income of the property.DSCR >1Principal + Interest = $1,500Taxes = $250, Insurance = $100, Association Dues = $25Total PITIA = $1875 Rent = $2300DSCR = Rent/PITIA = 2300/1875 = 1.23

If a purchase, you also generally need reserves / savings to show you have 3-6 month payments of PITIA (principal / interest (mortgage payment), property taxes and insurance and HOA (if applicable). If a cash out refinance, many lenders will allow the cash out to satisfy the reserves requirement.DSCR lenders generally let you vest either individually or as an LLC. It's a great way to increase your net worth and these loans can also be used to pull cash out of a property as it appreciates allowing you to reinvest money into new deals.

Happy to discuss further.

Steven Goldman · Answer

Try to obtain all of the paperwork the builder will provide you. He may be reluctant to give you the receipts as he may have been charging a markup. His bills and the proof of payment should be sufficient for most lenders. Good luck.

Jake Baker · Answer

@Shonari Wynter

For refinancing, you should be fine with the contractor's receipts.

Doing a BRRRR! Should I keep receipts of materials?

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