Brrrr mortgage question after rehab and appraisal

BRRRR - Buy, Rehab, Rent, Refinance, Repeat

Brrrr mortgage question after rehab and appraisal

Investor · Joliet IL · Member since 2024 · 36 posts · 16 votes

Hi I have a question for those of you that have done the Brrrr method on a property.How does the mortgage look after you rehab a house you bought in cash?Like let’s say I get a house for $30,000 and it appraises for $165,000 would my new mortgage amount be based on the property that is now worth $165,000? So let’s say I get a 15 year mortgage at $1348 monthly would this be correct to anticipate for any properties I do the brrrr method on?I wouldn’t be offered a Mortgage at $401 a month because the property is valued more so I will have to pay more monthly right due to its current valued after the forced rehab?

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Chris Barrett

Investor · Madison WI · Member since 2021 · 176 posts · 103 votes

Unless interest rates are significantly lower on a 15 year, you really would always want to go with a 30 year if available. You can always pay down more principle on a 30 year every month, but you certainly can't pay less a month on a 15 year :-D

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Matthew Becker
Developer · Moscow Idaho · Member since 2024 · 224 posts · 143 votes
1y
It depends. After you rehab it you should be able to get a loan with a 80% LVT. So if it apprasies at $165K your loan would be for $132K.
I am not sure where the $401 a month comes from. Your payment will just be based on Taxes, insurance and the loan payment.
Can you clarify?
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- Priscilla C.
  OP
  Investor · Joliet IL · Member since 2024 · 36 posts · 16 votes
  1y
  Quote from @Matthew Becker:
  
  It depends. After you rehab it you should be able to get a loan with a 80% LVT. So if it apprasies at $165K your loan would be for $132K.
  I am not sure where the $401 a month comes from. Your payment will just be based on Taxes, insurance and the loan payment.
  Can you clarify?
  
  Ok going off of this example
  
  Purchase Price: $100,000
  Rehab Costs: $50,000
  After Repair Value (ARV): $200,000
  80% LTV: If a lender allows an 80% LTV, the investor can refinance for $160,000 (80% of $200,000).
  
  So following this example would this mean my new mortgage is going to be based on $160,000 so let’s say for a 15 year loan I would be expecting to pay around $1,300 - $1,500 a month? I would not be paying a mortgage on the appraised value of $200,000 correct? yeah to clarify the $401 a month I just based it off a general search on a $50,000 mortgage…
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- Matthew Becker
  Developer · Moscow Idaho · Member since 2024 · 224 posts · 143 votes
  1y
  Quote from @Priscilla C.:
  
  Quote from @Matthew Becker:
  
  It depends. After you rehab it you should be able to get a loan with a 80% LVT. So if it apprasies at $165K your loan would be for $132K.
  I am not sure where the $401 a month comes from. Your payment will just be based on Taxes, insurance and the loan payment.
  Can you clarify?
  
  Ok going off of this example
  
  Purchase Price: $100,000
  Rehab Costs: $50,000
  After Repair Value (ARV): $200,000
  80% LTV: If a lender allows an 80% LTV, the investor can refinance for $160,000 (80% of $200,000).
  
  So following this example would this mean my new mortgage is going to be based on $160,000 so let’s say for a 15 year loan I would be expecting to pay around $1,300 - $1,500 a month? I would not be paying a mortgage on the appraised value of $200,000 correct? yeah to clarify the $401 a month I just based it off a general search on a $50,000 mortgage…
  
  Yep, you got it. If you can hit those numbers you are doing awesome. The lender should be OK with 80% LVT if you have enough rent to cover the payment plus expenses. A commercial lender looks at debt coverage of 1.2 to 1.25. A standard refinance will look more at your income.
  Is there a reason why you want to do a 15-year AM? Unless cash flow does not matter and you can rent for enough to cover all cost. The interest rates for 15 and 30 years are different. Notes held in-house at a credit union or community bank are sometimes lower.
  0 Reply
- Priscilla C.
  OP
  Investor · Joliet IL · Member since 2024 · 36 posts · 16 votes
  1y
  Quote from @Matthew Becker:
  
  Quote from @Priscilla C.:
  
  Quote from @Matthew Becker:
  
  It depends. After you rehab it you should be able to get a loan with a 80% LVT. So if it apprasies at $165K your loan would be for $132K.
  I am not sure where the $401 a month comes from. Your payment will just be based on Taxes, insurance and the loan payment.
  Can you clarify?
  
  Ok going off of this example
  
  Purchase Price: $100,000
  Rehab Costs: $50,000
  After Repair Value (ARV): $200,000
  80% LTV: If a lender allows an 80% LTV, the investor can refinance for $160,000 (80% of $200,000).
  
  So following this example would this mean my new mortgage is going to be based on $160,000 so let’s say for a 15 year loan I would be expecting to pay around $1,300 - $1,500 a month? I would not be paying a mortgage on the appraised value of $200,000 correct? yeah to clarify the $401 a month I just based it off a general search on a $50,000 mortgage…
  
  Yep, you got it. If you can hit those numbers you are doing awesome. The lender should be OK with 80% LVT if you have enough rent to cover the payment plus expenses. A commercial lender looks at debt coverage of 1.2 to 1.25. A standard refinance will look more at your income.
  Is there a reason why you want to do a 15-year AM? Unless cash flow does not matter and you can rent for enough to cover all cost. The interest rates for 15 and 30 years are different. Notes held in-house at a credit union or community bank are sometimes lower.
  I notice you are saying LVT is this the same as Loan to value LTV or are you speaking on land value tax?I was just throwing out an idea of a 15 year mortgage but I am open to 30 year as well.Just wanted to understand it better with the above examples.Thank you for the information.
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Matthew Becker
Developer · Moscow Idaho · Member since 2024 · 224 posts · 143 votes
1y
Sorry, I just typed it wrong: LTV. I am dyslexic and mess up letters a lot. Spell check does not always catch that stuff. 30 year is safer. Are you going to move into it?
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- Priscilla C.
  OP
  Investor · Joliet IL · Member since 2024 · 36 posts · 16 votes
  1y
  Quote from @Matthew Becker:
  
  Sorry, I just typed it wrong: LTV. I am dyslexic and mess up letters a lot. Spell check does not always catch that stuff. 30 year is safer. Are you going to move into it?
  Oh ok i understand nope just rent it out to tenants and go on to buy my next property.
  1 Reply
Chris Barrett
Investor · Madison WI · Member since 2021 · 176 posts · 103 votes
1y
Unless interest rates are significantly lower on a 15 year, you really would always want to go with a 30 year if available. You can always pay down more principle on a 30 year every month, but you certainly can't pay less a month on a 15 year :-D
1 Reply
- Priscilla C.
  OP
  Investor · Joliet IL · Member since 2024 · 36 posts · 16 votes
  1y
  Quote from @Chris Barrett:
  
  Unless interest rates are significantly lower on a 15 year, you really would always want to go with a 30 year if available. You can always pay down more principle on a 30 year every month, but you certainly can't pay less a month on a 15 year :-D
  I see
  0 Reply
Carini Rochester
Investor · Rochester, NY · Member since 2016 · 576 posts · 358 votes
1y
You could probably go as high as borrowing up to 80% of the after repair value (ARV.) 0.8*165,000=$132,000. But you don't have to borrow that much. If having a lower monthly payment is more important to you than getting as much equity (money) out of the property as you can, then borrow less. It's not that the bank "offers" you a certain mortgage amount, it's that you apply for a mortgage of a certain amount. The maximum is the bank's decision (80% of the ARV), but the amount you apply for is your decision.
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- Priscilla C.
  OP
  Investor · Joliet IL · Member since 2024 · 36 posts · 16 votes
  1y
  Quote from @Carini Rochester:
  
  You could probably go as high as borrowing up to 80% of the after repair value (ARV.) 0.8*165,000=$132,000. But you don't have to borrow that much. If having a lower monthly payment is more important to you than getting as much equity (money) out of the property as you can, then borrow less. It's not that the bank "offers" you a certain mortgage amount, it's that you apply for a mortgage of a certain amount. The maximum is the bank's decision (80% of the ARV), but the amount you apply for is your decision.
  
  I see that makes sense.Now you touched on a question that I am wondering about.How does an investor know how much money to pull out of a refinance to invest in their next property.Do you suggest I already have a 2nd property lined up and know the exact amount I need to purchase the 2nd property including the rehab bid so I have an idea of how much money I need for my next project?
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Logan Lambert
Lender · Kingsville, MD · Member since 2023 · 103 posts · 35 votes
1y
Quote from @Priscilla C.:

Hi I have a question for those of you that have done the Brrrr method on a property.How does the mortgage look after you rehab a house you bought in cash?Like let’s say I get a house for $30,000 and it appraises for $165,000 would my new mortgage amount be based on the property that is now worth $165,000? So let’s say I get a 15 year mortgage at $1348 monthly would this be correct to anticipate for any properties I do the brrrr method on?I wouldn’t be offered a Mortgage at $401 a month because the property is valued more so I will have to pay more monthly right due to its current valued after the forced rehab?

Hey Priscilla,

Great question here. The loan will always be based off the appraised value. Unless, you do a delayed purchase, where you buy it cash and rehab it with cash and then the loan is based off the cost of the purchase plus rehab. It will still be appraised and the bank will go off the lesser of the two. You can always leverage less of the appraised value so your mortgage is lower but that will only work if taking less also covers your hard money loan and closing cost. You could take less though and bring many to the table to cover the difference. These are things your lender should go over with you before submitting the loan and locking it before closing.
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Robert EllisBusiness Member
Developer · Miami, FL · Member since 2014 · 3k+ posts · 1k+ votes
1y
Quote from @Priscilla C.:

Hi I have a question for those of you that have done the Brrrr method on a property.How does the mortgage look after you rehab a house you bought in cash?Like let’s say I get a house for $30,000 and it appraises for $165,000 would my new mortgage amount be based on the property that is now worth $165,000? So let’s say I get a 15 year mortgage at $1348 monthly would this be correct to anticipate for any properties I do the brrrr method on?I wouldn’t be offered a Mortgage at $401 a month because the property is valued more so I will have to pay more monthly right due to its current valued after the forced rehab?

depends on timing, seasoning, rents if it's on a DSCR loan. talk to a lender.
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Chris Barrett
Investor · Madison WI · Member since 2021 · 176 posts · 103 votes
1y
It's a judgement call, some people pull out as much equity as a lender will let them. In my case I've stayed more conservative with 65% LTV and high cashflow. This slows down your acquisition of new property, but isn't as stressful when interest rates go up or if you have vacancy. Also I prefer more cashflow over more properties. I have 3 single family units, probably will be 4 by the end of summer and net cashflow should be about 6k a month. The tradeoff to this is that it's taken 5 years, with a high income job to pay for down payments.
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- Priscilla C.
  OP
  Investor · Joliet IL · Member since 2024 · 36 posts · 16 votes
  1y
  Quote from @Chris Barrett:
  
  It's a judgement call, some people pull out as much equity as a lender will let them. In my case I've stayed more conservative with 65% LTV and high cashflow. This slows down your acquisition of new property, but isn't as stressful when interest rates go up or if you have vacancy. Also I prefer more cashflow over more properties. I have 3 single family units, probably will be 4 by the end of summer and net cashflow should be about 6k a month. The tradeoff to this is that it's taken 5 years, with a high income job to pay for down payments.
  
  I see,that’s good cash flow and something to keep in mind.Good point there me and my husband are deciding on us both working to keep our income at a high level while buying investment properties so I will definitely keep that in mind when it comes time to make a decision on how much equity we want to pull out of our properties.Thank you for your advice!
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Mike Klarman
Specialist · NJ · Member since 2022 · 1k+ posts · 653 votes
1y
On Cash purchases, most lending institutions will make you wait 3 - 6 months, sometimes more before you can refinance at new value. The ones with no seasoning periods will make you pay dearly either with the rate or with loan costs.
In the scenario you mentions above, if you bought a house for 30k (you didn't mention doing any work, but I assume since you mentioned BRRRR there is a rehab), you do the work and get a renter in there with a lease and then after the seasoning period, you now can refinance based off the new value of 165k of which you should get 75%.
But why 15 yr mortgage, why not 30 yr to make the payment smaller?
A quick check for your max loan payment a lender will allow is to divide your rent/1.1 that number is around what the max loan payment will be by the lender.
1 Reply
- Priscilla C.
  OP
  Investor · Joliet IL · Member since 2024 · 36 posts · 16 votes
  1y
  Quote from @Mike Klarman:
  
  On Cash purchases, most lending institutions will make you wait 3 - 6 months, sometimes more before you can refinance at new value. The ones with no seasoning periods will make you pay dearly either with the rate or with loan costs.
  In the scenario you mentions above, if you bought a house for 30k (you didn't mention doing any work, but I assume since you mentioned BRRRR there is a rehab), you do the work and get a renter in there with a lease and then after the seasoning period, you now can refinance based off the new value of 165k of which you should get 75%.
  But why 15 yr mortgage, why not 30 yr to make the payment smaller?
  A quick check for your max loan payment a lender will allow is to divide your rent/1.1 that number is around what the max loan payment will be by the lender.
  All very good points,Yes was just using 15 year as an example but yes we will definitely be doing the 30 year to make the monthly payments smaller.We understand that from being homeowners.With the seasoning period that is a very good thing to keep in mind.It proves a point that buying a property in all cash might be more safe and beneficial for us then using a hard money loan as during that waiting period it would nice to not be charged fees and interest on a hard money loan.Correct we plan to rehab.Now do some investors buy the house in cash and then use a hard money loan for the rehab portion?
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