How soon can you refinance after the BRRRR strategy?
29 Replies
Raul Quezada
from Los Angeles, CA
posted about 1 year ago
Hey everybody I’m new to real estate investing, currently have two properties under my belt in 3 months.
But I was wondering how soon can you refinance your home using the BRRRR strategy?
Thanks in advance!
Ned Carey
(Moderator) -
Investor from Baltimore, MD
replied about 1 year ago
@Raul Quezada it depends on the lender.
Matty Foley
Lender from Frederick/Montgomery County, MD
replied about 1 year ago
I will speak on my bank's timeline assuming you are using traditional financing. In my case, if I have all of the information I need (tax returns, PFS, property information, etc...) I turn these around in about 30 days - and have done quicker if my borrower is in a rush. I would need a copy of the executed lease showing that the DSCR covers at 1.2x or better. To determine if your properties would cover the DSCR, most commercial banks will calculate the properties' net income at 70% of the gross rental income (vacancy and expenses). If it's a newer property and significant renovations have been done, we will sometimes use 75% of gross rents. We do not require the property to be seasoned for a certain amount of time if that's your question. As long as the property is leased, we will reimburse/refinance 75% of the appraised value. If you do this right you should be recouping the majority of the cash you have invested. The 30-35 day period would be common for any commercial deal. That accounts for underwriting, waiting on the appraisal, getting the loan approved, collecting due diligence items, and have loan documents prepared for closing. In your case, if the properties are already renovated and leased and the bank is still making you wait to refinance, I would recommend searching for a different bank. but id suggests calling some local community banks and asking to speak to a commercial lender and ask those specific questions. I hope that helps.
Michael Noto
Real Estate Agent from Southington, CT
replied about 1 year ago
@Matty Foley Good info in your post. Seems like your bank offers a good product for refinancing. I think what the OP was asking is what the seasoning period a bank looks for before you can begin the refinance process you outlined. Any thoughts on that?
There aren't a ton of active lenders here on BP (I would imagine the ones that are absolutely kill it with leads) it is always great to get a peak under the hood of how the financing end of the business looks at things.
Doran Summers
Lender from Chicago, Il
replied about 1 year ago
@Raul Quezada theses a few QM lenders who can refinance after 30 days of ownership.
Steve Vaughan
Rental Property Investor from East Wenatchee, WA
replied about 1 year ago
For conventional residential loans in your name (not an LLC), my bank says 6 months if just rate and term, 12 months for cash out.
So for one direct lender, seasoning of a cash out BRRR would be 12 months but I've certainly heard of 6.
This same bank was quoting me a 30yr fixed rate of 4% with 2 points on a quad buy with 25% down for reference. Not sure what commercial terms would be. Speed usually costs and reporting your financials to them every year sucks.
David M Trapani
Rental Property Investor from Franklin, TN
replied about 1 year ago
Matty Foley
Lender from Frederick/Montgomery County, MD
replied about 1 year ago
@Michael Noto thanks Michael! I know it’s was lengthy post, but I did mention that we do not require any seasoning period. We feel if the owner has gotten the property leased, they have added value to the property. As soon as I receive a copy of the signed lease I will order the appraisal and get started on the refinance process. Like I said, it’s common that 75% of the appraised value, after renovations, will reimburse the borrower close or all of the amount they’ve invested in the property (assuming they’ve bought and renovated the property in cash). *I know that many banks do not offer this product and will only advance 75% of the purchase price. It’s about finding the right community Bank. Let me know if that all makes sense.
CJ M.
Rental Property Investor from Canton, OH
replied about 1 year ago
I've done it within 2-4 weeks of closing on the initial purchase (with commercial loans).
Matty Foley
Lender from Frederick/Montgomery County, MD
replied about 1 year ago
@Matty Foley Last thing: Of course the Borrower(s) would need to be credit worthy and the loan would be subject to underwriting. The subject properties cash flow is the main requirement in starting the process, but we would make sure the Borrower has the financial standing and global cash flow to pay the debt if secondary source of repayment was needed.
Shaun Weekes
Loan Officer / Processor / Life & Health Agent from Valencia, CA
replied about 1 year ago
Did you purchase the properties with cash or did you finance them?
David Brown
replied about 1 year ago
Im closing on a refi to a property i bought 5 months ago in a week or so. Paid $135k, appraisal came in at $610k & my lender is giving me 80%. Thought it was worth more from a cashflow perspective, but im glad my bank allowed such a large equity gain in such a short time.
Raul Quezada
from Los Angeles, CA
replied about 1 year ago
I financed them, conventional 30yr loan.
Tim Johnson
Lender from Grand Rapids, MI
replied about 1 year ago
This depends on the product your select. Conventional or commercial loan and number of units- I will use 1-4 unit size.
Products we use:
Commercial= no seasoning- rate is about point to point and half higher than typical conventional loan but they will lend 75% LTV 1-4 units They use a section 1007 market rent appraisal, so cost is about $150 higher then typical appraisal. Needs DCSR at 1% the lowest in the industry on the market in my area. Investment property only, 3 year pre payment on it. No tax returns or personal DTI comes into play. Cash out has to be used for business purposes only. Higher closing costs, but still works- Appraisal are coming in decent not many low ones. Min loan amount is 100k- 3 week close. You can close in LLC name or personal name. They do 30 year, 5/1 arm or interest only
Conventional loan- if purchased with cash- you have to wait 6 months- Anti money laundering law, actually alot of medical pot guys are doing this and getting stuck on REFI so having them go commercial. Pot is big in Michigan rate now, the money is flowing. Lowest Fees, best rate on this product. Appraisals are coming in decent, if you your doing some value add. Make sure you document it well. List of repairs nice little folder for the appraiser to document scope of work will get the value higher and LTV. Fannie Mae website is great for guidelines on this one. LTV varies on unit size. Works well 30-45 day closing, no pre payment, we set a 75k loan min. Property needs to be in personal name, all loans are full doc, so tax returns, bank statement, DTI comes into play. They do 5-30 year terms fixed only.
Just an example of my favorite 2 products on market for BRRR, lots of lenders in the market but these 2 close the easiest and quickest that I have used.
Shaun Weekes
Loan Officer / Processor / Life & Health Agent from Valencia, CA
replied about 1 year ago
Then if you're looking for conventional financing you'll need to wait 6 months for new appraised value. Other private and non qm lenders will only have you wait 30 to 90 days.
Scott Donahue
Rental Property Investor from Indianapolis, IN
replied about 1 year ago
0-6 Months: Loan to Cost (I.e. can finance update to purchase price).
6+ Months: 75% Loan to Value (I.e. can finance up to 75% of appraisal).
Jaclyn Harty
Investor from Greenville SC/ Carlsbad, CA
replied about 1 year ago
@Matty Foley is this after 180 days after purchase? I have been told by most they won’t refinance with a new appraised value until 6 months after the purchase.
Jayna Deardeuff
replied about 1 year ago
@David Brown is the refi complete? How much did it cost? Your numbers look incredible!
David Brown
replied about 1 year ago
Originally posted by @Jayna Deardeuff :@David Brown is the refi complete? How much did it cost? Your numbers look incredible!
Hopefully closing next week, will have closing statement then & will post. Thank you.
Eric Armstrong
Investor from Wilmington, Delaware
replied about 1 year ago
@David Brown tell us more about this deal. Fantastic equity gain.
John H.
Investor from Minneapolis, MN
replied about 1 year ago
Paul,
For your 2 properties that you recently own, did you buy through realtor or you buy it yourself? How many days is the money available for you?
Matt Honeyford
Investor from Rochester, NY
replied about 1 year ago
We started the refinance before we actually owned the property.
Once our offer was accepted we began the refinance with our lender, a local credit union. We expect to only hold it with hard money for a month or two before the refinance is complete.
David Brown
replied about 1 year ago
It was a 12 unit motel with a 3br single family attached and a 2 car commercial garage in the rear. I added 2 more bedrooms to the 3br house and converted the garage into 2, 1br suites.
I am currently leasing 12 ex motel units as efficiency units with full kitchens, all utilities and cable/internet included for $650 per mo
The newly constructed 1br suites are renting for $850 per mo everything included
And the 5br single family is currently being rented for $1200
Total yearly gross rents are $128,400. Will net about 90k.
Purchase price was 135k and I put around $120k into it.
Also created a laundry room and vending area which I hope will bring in equivalent to an efficiency unit.
Odie Ayaga
Specialist from Delran, NJ
replied about 1 year ago
Like @Ned Carey said depends on the lender. As soon as next day