Doing the BRRRR the right way

Doing the BRRRR the right way

Andre TaylorPro Member
Rental Property Investor · Chicago, IL · Member since 2017 · 219 posts · 180 votes

Hello.. I am currently doing my first BRRRR on one of my investment properties and had some hiccups through this process and I am hoping to get some tips on how to do the next one right. I bought my Quadplex in July 2018 for $85k. I put about $85k into it and had it fully rented by April 2019. TO finance the rehab I used peer to peer lending and cash from my account. Now Two months ago when i choose to re-fi . The appraiser called me up and asked me if i owned it for more than a year which I did and she said good because if I owned it less then a year then she would had to based it off what I purchase for and that was something I did not know. The appraisal came out to $230k and the local bank in my area was going to do a 70 LTV but I got rejected from my lender due to my debt to ratio being high. So I went to another lender and he informed me my previous lender should had removed the loans I was paying off with the refi before submitting it to the underwriting system to bring my debt to income ratio down. Luckily this new bank is going to do the refi. Now my question ....would it been better for me to do a Hard Money Loan to purchase and rehab the property ? Assuming the hard money loan doesn't show on my credit report to affect my debt to income ratio and since i would had bought the property cash and i would not be bound by the rules of holding a property for a certain time before refi if i had a mortgage on it. Look for tips on how to do this BRRRR method right?

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Jaron WallingPro Member
Rental Property Investor · Indianapolis, IN · Member since 2018 · 4k+ posts · 4k+ votes
6y

So you're leaving about $5K in the deal? When you factor in the original down payment, new loan, closing costs, and anything else I don't see extra money. 

We haven't even talked about cash-flow as a rental. Why not flip and make $60K???? You could triple the original investment. 

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  • Jaron WallingPro Member
    Rental Property Investor · Indianapolis, IN · Member since 2018 · 4k+ posts · 4k+ votes
    6y

    How much of your own money do you have in this deal? Can you explain peer to peer financing? 

    The post is a little confusing but generally the BRRRR method requires cash for the purchase + cash/loans to rehab. 6 months later you target banks for the REFI.

  • Andre TaylorPro Member
    OP
    Rental Property Investor · Chicago, IL · Member since 2017 · 219 posts · 180 votes
    6y

    I did a conventional loan and put 20% down which was about $18k of my cash. Now the rehab was $85k and I used peer to peer loan for the rehab. Again this is my first attempt at doing the BRRRR so looking for tips on constructive feedback on what I could have done differently. thanks

  • Rental Property Investor · Canton, OH · Member since 2017 · 1k+ posts · 1k+ votes
    6y

    @Andre Taylor

    I don't have much to add, just that banks are different. Some don't require a seasoning period before doing a refinance.

  • Jaron WallingPro Member
    Rental Property Investor · Indianapolis, IN · Member since 2018 · 4k+ posts · 4k+ votes
    6y

    @Andre Taylor So now you have a first and second position loan on the property? The BRRRR strategy doesn't work that way but I'm sure you figured that out.

    In my opinion this property feels like a flip opportunity.  

    What are the terms for REFI you found? Idk how you can with $18k invested. 

  • Andre TaylorPro Member
    OP
    Rental Property Investor · Chicago, IL · Member since 2017 · 219 posts · 180 votes
    6y
    I bought the property for $85k with 20% I put down so the remaining balance is $63k , Rehab it for $85k which I used peer to peer lending.  The property appraised for $230k. I was doing a 70 % LTV Cash out Refi at $160K  which will be my new loan and Ill have about $98k of that back in my pocket which i plan to use to pay off the remaining balance of my $85k peer to peer loan and the rest to put down on my next. 
  • Jaron WallingPro Member
    Rental Property Investor · Indianapolis, IN · Member since 2018 · 4k+ posts · 4k+ votes
    6y

    So you're leaving about $5K in the deal? When you factor in the original down payment, new loan, closing costs, and anything else I don't see extra money. 

    We haven't even talked about cash-flow as a rental. Why not flip and make $60K???? You could triple the original investment. 

  • Andre TaylorPro Member
    OP
    Rental Property Investor · Chicago, IL · Member since 2017 · 219 posts · 180 votes
    6y

    Well the $85k loan which i been paying back on since Aug 2018 and is paid down to $65k so I would get back about $20k. Which is like my original down payment money i used to purchase the property and i would used to go grab another rental property. I'm a buy and hold investor... that's the only reason I have not flipped it. this is my 4th multi family and I have 5 of them now...so I'm just at the point I'm ready to tap equity to leverage to purchase more doors and not tap into my reserves to do it.  I bring in $3000 gross a month and my current mortgage is $551 ( with interest and insurance ) so it cash flow nice and after my Refi the payment will go to about $950 ( with interest and insurance ). 

  • Andre TaylorPro Member
    OP
    Rental Property Investor · Chicago, IL · Member since 2017 · 219 posts · 180 votes
    6y

    Let me ask @Jaron Walling  how would you done this deal?

  • Jaron WallingPro Member
    Rental Property Investor · Indianapolis, IN · Member since 2018 · 4k+ posts · 4k+ votes
    6y

    That changes a lot on this deal since the cash-flow is so good. 

    If it was me I would have bought it cash for $75K! Then I would have pulled equity from another investment to complete the rehab.

  • Andre TaylorPro Member
    OP
    Rental Property Investor · Chicago, IL · Member since 2017 · 219 posts · 180 votes
    6y

     thats what i was thinking after the fact... i should had hard money the purchase... then use one of my other properties equity to do the rehab.. or I wonder what it made sense to just do a hard money for the purchase and rehab..??

  • Jaron WallingPro Member
    Rental Property Investor · Indianapolis, IN · Member since 2018 · 4k+ posts · 4k+ votes
    6y

    @Andre Taylor Hard money is expensive money. You have points, high interest, and rules. Go private and work with another investor for next one. People like to loan money for less, collect checks, and do nothing :-)

  • Andre TaylorPro Member
    OP
    Rental Property Investor · Chicago, IL · Member since 2017 · 219 posts · 180 votes
    6y

    awwww private didnt think about that... thanks for the tips

  • Rental Property Investor · Orlando, FL · Member since 2019 · 66 posts · 180 votes
    6y

    @Andre Taylor even if you pay cash traditional lenders require you to own the property for 6 months before a cash out refi on the property. However if you have the cash you can do delayed financing which is the purchase price plus rehab all paid at close. It’s a lot more complicated than that but that’s what BP is for.

  • Investor · Philadelphia, PA · Member since 2017 · 48 posts · 12 votes
    6y
    @Andre Taylor I just had the same exact thing happen to me. My issue was my bank did not want to go over half million in loans with me. So I used 2 banks for two separate loans against two properties. I learned only consumer debt is shown. My LLC loans did not show up on my credit report which I still can’t figure out.
  • Investor · Philadelphia, PA · Member since 2017 · 48 posts · 12 votes
    6y
    @Andre Taylor what is the cash flow on the house. I did same numbers. My rent roll is $4700 with insurance and taxes my only expenses. That is a bite factor in you BRRRR strategy.
  • Ryan ShortPro Member
    Investor · Boston, MA · Member since 2016 · 77 posts · 55 votes
    6y

    @Anthony Thompson yes that is true sometimes but as long as it is under 5% of the purchase price it is usually not a problem. Also in this case it is to prevent a lender from denying the loan on a property with knob and tube.

  • Andre TaylorPro Member
    OP
    Rental Property Investor · Chicago, IL · Member since 2017 · 219 posts · 180 votes
    6y

    @Isaac Hebron my rent roll is $3000 a month... mortgage, taxes and insurance is $551.00 a month. two separate banks did your loans.. how did they play out with your debt to income ratio? Thats one thing I think about too is after I accumulate so many rentals...how will that play into my debt to income ratio with the banks

  • WorldWide · Member since 2016 · 1k+ posts · 1k+ votes
    6y

    nice numbers, from the looks of it. congrats!

    hard money helps when you have a smoking deal and you want it get done fast (with that cash-like allure). however, like Jaron mentioned, it could be more expensive with fees, points, etc. Holding a property for a year with HM loan is a no-go. You'd have to get everything wrapped up in about 6 months after the purchase date, including the refi. Oh, and it absolutely shows up on your credit history. 

  • New York, NY · Member since 2017 · 5 posts · 1 vote
    6y

    @Andre Taylor

    How are you tapping into equity to fund your rehabs? I've found that lenders don't like to give HELOC or Home Equity Loans on investment properties.

  • Andre TaylorPro Member
    OP
    Rental Property Investor · Chicago, IL · Member since 2017 · 219 posts · 180 votes
    6y


  • Andre TaylorPro Member
    OP
    Rental Property Investor · Chicago, IL · Member since 2017 · 219 posts · 180 votes
    6y
    Originally posted by @Account Closed:

    @Andre Taylor

    How are you tapping into equity to fund your rehabs? I've found that lenders don't like to give HELOC or Home Equity Loans on investment properties.

    Hey
    @John Fitzsimons

    I am doing a cash out Refi for a 70% LTV.. which my property appraised for $230k. Just waiting on underwriter to clear me to closed. I had to tell them which debts I am paying off on my credit report to reduce my debt to income ratio because that threw up flags at first.

  • Andre TaylorPro Member
    OP
    Rental Property Investor · Chicago, IL · Member since 2017 · 219 posts · 180 votes
    6y

    @Victor S. Thanks for that info.. really try to hone down the finance techniques so i can get more rentals faster. I listen to BP Podcast 327 on BRRR got some better ideas now.... Have you done the BRRR process and any tips you can share?

  • Fairview Heights, IL · Member since 2015 · 29 posts · 13 votes
    6y

    @Andre Taylor

    I strongly believe you did it the right way.... sadly all the finical institutions requirements are different... some banks require a seasoning period and others do not... some banks allow multiple properties under one loan others don’t.... only thing I’d suggest is doing your homework on your local banks and their requirements and save that info somewhere. Doing it this way will give you a heads up on your next refi because you’ll know which banks to avoid based your your current circumstances.

  • Fairview Heights, IL · Member since 2015 · 29 posts · 13 votes
    6y

    @Andre Taylor

    Sorry I forgot to mention... those are all good points for using hard money... as long as your numbers make sense do it.

  • Andre TaylorPro Member
    OP
    Rental Property Investor · Chicago, IL · Member since 2017 · 219 posts · 180 votes
    6y
    Originally posted by @Charles Smith:

    @Andre Taylor

    I strongly believe you did it the right way.... sadly all the finical institutions requirements are different... some banks require a seasoning period and others do not... some banks allow multiple properties under one loan others don’t.... only thing I’d suggest is doing your homework on your local banks and their requirements and save that info somewhere. Doing it this way will give you a heads up on your next refi because you’ll know which banks to avoid based your your current circumstances.

    Solid advice!!!! Did you ever run through a BRRR on one of your projects?

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