BRRRR in Boston? Refinance questions

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I have a found a decent deal in Boston, that I want to attempt to BRRRR. But, I am having real trouble with the finance/refinance process. I have the 20% down and most likely the money for the rehab.

I have been told that I can not buy the property in hard money, fix it, rent it and then refi into a conventional. This is because an LLC has to buy in hard money and conventional has to be done in a personal name.

I have been told that if I buy conventional, fix it and rent it, I can't cash out refi for 12 months.  If I do less than 12 months, then they will take the purchase price, not the appraised value. 

Can anyone provide any insight into the BRRRR process in Boston? How are you guys financing and refinancing?

Thank you.

Use Cambridge Savings Bank. I just did a cash out refinance with them with a property held in an LLC. Annoying to work with a little bit, but they got it done. Just need to provide proper LLC documentation and paperwork.

@Chris Roche you already have a good suggestion above but the essential thing here is that you need a different lender.  Now, I can't tell what TYPE of loan you are receiving but if it's a Fannie/Freddie type of loan you do NOT have to wait.  However, lenders can put their own rules OVER the Fannie/Freddie rules to be more conservative.  I know that sounds strange, but investment properties do foreclose at a higher rate than primary homes.  So if a bank wants to reduce their exposure to that...then they will put extra rule in place.  We call those rules "OVERLAYS".  Now smaller, more local lenders have less, or even NO overlays.  And that's why we always preach about using smaller lenders.  It still doesn't GUARANTEE success but your probability is significantly higher.  So even when interviewing a bank that is recommended I wrote a list of questions you should be asking them...just to make sure they are flexible for us as investors.  Here's the list:

Questions for Lenders

  1. When do you start using rental income to help me qualify? (the answer needs to be immediately)
  2. When do you start using “After Repair Value” on my property?
  3. How long do you need me to be on title to refinance? (this is important if you do need a short term loan to purchase then refinance out - and the answer should be 1 day...very important that it is 1 day on title is all that is needed to refinance)
  4. What is my minimum down payment required? (if they only require 15% down on a single family home that is usually a good sign that you are working with a flexible lender)
  5. How many loans can I have with you?
  6. Can I change title to my LLC?
  7. Do you sell your mortgages?
  8. What is your loan minimum?
  9. Can you explain to me what your reserve requirements are?

Chris, let me also jump in with further clarification. If you purchase with hard money in an LLC, your refinance will also be in an LLC and will require a conventional commercial loan. (For example, Cambridge Savings) Commercial loans are a little more expensive than conventional residential, and the rates can adjust every 5-10 years. INsurance and appraisals are also more expensive.

If you buy with a residential loan, and refinance in 12 months, (this is called seasoning) your refinance will be conventional residential.  Both of these loans will be cheaper than hard money and conventional commercial.  That's why I suggested going residential when you called, instead of using hard money.

So run the numbers in both scenarios, after you get the costs for both.  Don't forget to take increased insurance and appraisal into the mix.  I still think you will be better off with residential to start, and then residential in 12 months.  So what if it takes 12 months to refinance?  You'll be in an election year and should still get good rates in a year while enjoying residential rates for that entire 1st year.  

I commend you Ann for giving honest objective advice even though you could be seen as having a horse in this race.  You seem like one of the "good guys / gals" in this industry!!

There are also a number of HMLs now that do long term residential loans. The rates typically won't be as good as conventional, but they do both including the opportunity to use them for the rehab then refinance with them into long-term

@Jay M. Thank you.  I do sort of have a horse in the race, however when Chris called me yesterday, I told him he was better off getting conventional residential if he could.  I referred him to a LO who I think can do it in time.  Also told him to come back to me if he couldn't get it done.  His timeline is 3 weeks, which is plenty of time for me, but difficult for residential.

@Chris Roche I will reinforce what I was talking about earlier....if a residential lender is telling you that you have to wait 12 months to refinance your investment property YOU ARE NOT TO WORK WITH THAT LENDER.  Find another lender.  No investor HAS to wait 12 months to refinance with a residential Fannie Mae or Freddie Mac loan.  That is a lender OVERLAY.  Those types of lenders do not belong in the investment property world....well, maybe.  It certainly allows a lot of other lenders to compete against them easier.  Hope this helps.