The Refi step in the BRRRR

2 Replies

Some clarification please on the Refi step:

Assumptions:

400K purchase price house

80k down (20%, conventional loan)

40k Rehab

465k Reappraised ARV

Ok, so the Refi:

70% LTV

So is this correct?:

465*70%: 325k so in the cash out refi I can get 325k, ***did I turn my 120k (80 down + 40k rehab) into 325k?***

I know im missing closing cost in the first purchase but i know i can roll the second ones into the refi, and not talking about cash flow, just wanna know if im getting the Refi part right from BRRRR. Thanks!!!

Hello!

So in your example, lets say your bank will loan up to 70% of the property's value. If your current loan is for 320k and the property is worth 465k then 465 * .70 = 325k. Then 325k-320k = $5k available for your cash-out refi. You'd only be able to pull out and pay back 5k of your rehab money. The numbers aren't favorable for a cash out refi here... 

Two things; one, many banks will lend 80% LTV so try and shop around for one that will. Two, putting 40k in for something that will only increase by 65k is not a great return on your investment at least for a refi. If I were to put 40k into a property we look to have it increase in value by at least 100-120k.

I hope that helps

@Clara Levy you have some good information above. To just reinforce the message here we usually don't use a conventional loan to BUY a property. We usually use a loan type that lends based on the ARV.

So if you targeted a property with an ARV of $465,000 then you should be BUYING and REHABBING at $350,000. And this is because of your BUY financing. If you can BUY and REHAB at 75%, then your out of pocket is ZERO. And ZERO is much better than $80k.

I hope all of this makes sense but let us know if you have other questions on it.  Thanks!