Time Factor in BRRRR

BRRRR - Buy, Rehab, Rent, Refinance, Repeat
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Time Factor in BRRRR

Pablo Davidov
Real Estate Agent · Fort Lauderdale, FL · Member since 2019 · 37 posts · 17 votes

Initial disclaimer: my knowledge about BRRRR is purely theoretical. Although I have studied the strategy extensively, I have not yet done my first BRRRR deal, and the purpose of this post is to get insights from fellow BP members who have actually done one or several BRRRR deals.

I feel I have a pretty good understanding in general, and how to analyze the numbers, and which numbers need to be reached in order for it to be considered a successful deal. My question has to do with time itself, and I haven't found many videos, podcasts, or articles that discuss the time element. 

The 2 biggest unknowns for me are related to the Rehab and Refi steps. I believe that the Refi may be the easiest to answer, as I have heard a couple of comments that it may take anywhere from 12 to 18 months after purchase to get the loan refinanced due to a practice called "seasoning" by the banks I believe, but correct me if I am wrong. Please let me know what your experience has been as far as how fast you have been able to refinance.

The second time unknown is the Rehab step, which I understand depends highly on the number of repairs, the complexity of the repairs, and size of the property. Regardless of the amount, I have to imagine that it would take anywhere from 1 to 6 months to get it done. During those months, the cash flow will actually be negative. That is the one thing, that I haven't heard being discussed in any of the content I have been studying and the BRRRR calculator doesn't take into account. I understand that in the long run, the investment is more than worth it, but it would nice to have a more accurate way of making projections.

Am I completely off the mark in considering these factors or is it something other BP brothers and sisters have thought of? Any insights would be greatly appreciated. Thanks in advance. 

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Andrew PostellPro Member
Lender · Fort Worth, TX · Member since 2016 · 8k+ posts · 6k+ votes
6y

@Pablo Davidov I'll tag @Jon Crosby here too since there is so much confusion on this subject but you DO NOT have to face seasoning.  And in most cases we don't face seasoning.  Here's what I mean:

On your BUY step we usually need a loan to BUY & REHAB the property. The loans that do these steps the best will lend you 75% of the ARV of the property. So when you get to the REFINANCE step, you can absolutely, 100% refinance that amount with ZERO seasoning. None. Now, don't get me wrong here....not every bank will follow this. So when we get PREQUALIFIED, before we buy any properties, we ask them if they haves seasoning requirement for refinancing. If they do, then we go to a different lender. I hope this makes sense how I am describing all of this.

And the costs from when the property is empty is called HOLDING COSTS. So yes, calculating your HOLDING COSTS are critically important to a successful BRRRR transaction.

Anyway, I hope this helps in some way.  Feel free to ask anything additional if you need.  Thanks!

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  • Jon Crosby
    Investor · Roseville, CA · Member since 2016 · 893 posts · 1k+ votes
    6y

    @Pablo Davidov Seasoning period is real, but I believe some lenders are down to 6 months now.  All depends on lender I'm sure, but it's certainly something you want to factor into your holding costs. 

    Best of luck! 

    1Reply
  • Pablo Davidov
    OP
    Real Estate Agent · Fort Lauderdale, FL · Member since 2019 · 37 posts · 17 votes
    6y

    Thank you @Jon Crosby I appreciate your prompt feedback!

    0Reply
  • Andrew PostellPro Member
    Lender · Fort Worth, TX · Member since 2016 · 8k+ posts · 6k+ votes
    6y

    @Pablo Davidov I'll tag @Jon Crosby here too since there is so much confusion on this subject but you DO NOT have to face seasoning.  And in most cases we don't face seasoning.  Here's what I mean:

    On your BUY step we usually need a loan to BUY & REHAB the property. The loans that do these steps the best will lend you 75% of the ARV of the property. So when you get to the REFINANCE step, you can absolutely, 100% refinance that amount with ZERO seasoning. None. Now, don't get me wrong here....not every bank will follow this. So when we get PREQUALIFIED, before we buy any properties, we ask them if they haves seasoning requirement for refinancing. If they do, then we go to a different lender. I hope this makes sense how I am describing all of this.

    And the costs from when the property is empty is called HOLDING COSTS. So yes, calculating your HOLDING COSTS are critically important to a successful BRRRR transaction.

    Anyway, I hope this helps in some way.  Feel free to ask anything additional if you need.  Thanks!

    8Reply
  • Jon Crosby
    Investor · Roseville, CA · Member since 2016 · 893 posts · 1k+ votes
    6y

    Thanks @Andrew Postell for the clarification! Good to know there are options out there that do not require any seasoning. Appreciate the info and have a Happy New Year!  

    1Reply
  • Pablo Davidov
    OP
    Real Estate Agent · Fort Lauderdale, FL · Member since 2019 · 37 posts · 17 votes
    6y

    Thank you @Andrew Postell, that was very helpful.

    1Reply
  • Gil Segev
    Austin · Member since 2018 · 108 posts · 47 votes
    6y

    @Andrew Postell you say that we borrow 75% of the ARV when we buy the property. I am assuming banks won't lend 75% of a future ARV but rather lend against the current value or purchase price of the property.

    In this case we need to go to HML who would lend against ARV for the initial loan.

    What you are saying then is that if I borrow from a HML to buy and rehab, I won't need a seasoning period before I refi with a bank as soon as my bank rehab is complete?

    1Reply
  • Kenneth GarrettPro Member
    Investor · Florida Panhandle/Illinois · Member since 2016 · 4k+ posts · 3k+ votes
    6y

    @Pablo Davidov

    There is no seasoning If you use commercial lending. This requires to refinance in an LLC or other entity. Rates are higher, but no limit on number of loans. Approval is based on cash flow and no DTI ratio. I find the commercial process is much easier.

    You are correct the holding cost must be included in your analysis. If done right, you have forced appreciation and you can get all of your money back out. A ROI/COC return of infinity.

    Just a different perspective.

    Good Luck.

    3Reply
  • Pablo Davidov
    OP
    Real Estate Agent · Fort Lauderdale, FL · Member since 2019 · 37 posts · 17 votes
    6y

    Thank you @Kenneth Garrett My apologies if this is an ignorant question, but can you actually use commercial lending for multi-family properties of 4 units or less, or it has to be only for 5+ units? 

    0Reply
  • Kenneth GarrettPro Member
    Investor · Florida Panhandle/Illinois · Member since 2016 · 4k+ posts · 3k+ votes
    6y

    @Pablo Davidov

    This is a misconception.  You can get a commercial mortgage on single family homes.  The designation of a commercial property is 5 units or greater.  That has no bearing on commercial lending on 4 units or less.  You will need to contact small local lenders in your area. Stay away from the large banking institutions.

    2Reply
  • Pablo Davidov
    OP
    Real Estate Agent · Fort Lauderdale, FL · Member since 2019 · 37 posts · 17 votes
    6y

    @Kenneth Garrett very useful information. Thanks!

    0Reply
  • John MorganPro Member
    Rental Property Investor · Grand Prairie, TX · Member since 2018 · 2k+ posts · 2k+ votes
    6y

    @Pablo Davidov

    Any chance you can pay cash for the initial property or borrow money from someone to purchase it in cash so you don't have a loan? That's what I didn't and have done a few BRRRRs. My contractor can get the rehab done in 3 or 4 weeks. I look for tenants during that time. Then the second he's done rehabbing it, I've got someone moving in. Then I wait until I find a great deal on the next property. Once I find a great deal and get a signed contract on the next one I offer in cash, I do a cash out refi on my BRRRR property. My bank only takes 3 weeks to do the cash out refi for me. Then keep repeating. But I had to really scrounge hard for cash for my very first investment property I paid 130k cash for in 2015. I had to do some creative financing to come up with the initial cash to get started. But I've been able to acquire more properties for free by doing cash out refis and repeating the whole process. Good luck!

    2Reply
  • Andrew PostellPro Member
    Lender · Fort Worth, TX · Member since 2016 · 8k+ posts · 6k+ votes
    6y

    @Gil Segev some banks/lenders will absolutely lend 75% of the FUTURE ARV. And when I say ARV, I mean the After Repair Value. What the property will be worth AFTER someone repairs it. So yes, future value. If a lender will only lend on current value, well, that doesn't help us as investors. We MUST get lending on ARV. HML is ONE loan type that will lend on ARV. And yes, you can absolutely avoid seasoning requirements when refinancing. Again, if a lender has seasoning, then go to another lender. There are PLENTY who will have ZERO seasoning requirements.

    @Kenneth Garrett & @Pablo DavidovI jus t want to reiterate here since there is a lot of confusion on this topic.  There is no seasoning on Fannie/Freddie loans either.  It is true that most commercial loans won't have seasoning but a traditional, residential refinance has no seasoning requirements from Fannie/Freddie.  If a lender is saying you must wait....then you must find a different lender.  There are PLENTY who will follow the Fannie/Freddie rules and have no seasoning when refinancing out of hard money.

    @John Morgan by chance, do you know if you can qualify for a Fannie/Freddie loan type?

    5Reply
  • Gil Segev
    Austin · Member since 2018 · 108 posts · 47 votes
    6y

    @Andrew Postell this is super interesting! One of the things I was most concerned with before going into my first BRRRR were holding costs associated with hard money and the risk of rehab taking longer than projected. Being able to use traditional financing from day one could definitely mitigate at least some of this risk.

    0Reply
  • Jordan Mummau
    Real Estate Agent · Hershey, PA · Member since 2019 · 66 posts · 54 votes
    6y

    @Pablo Davidov

    I do BRRRR exclusively. As others have mentioned. Shop your lenders. I have found a few that offer no seasoning periods. Additionally, ask beforehand what they'll lend on a cash out refinance. Some will only do 60%. I've found others that'll do 75%. If you qualify, I'd always recommend when doing a BRRRR financing 4 units or less on a residential 30 year mortgage. There's a lot of content on BP about the pros and cons of 15vs30 but typically BRRRR investors are cash flow hunters and the 30 year allows you to do this the best.

    As far as rehab time, that’s not easily answered. Depends on a myriad of factors including contractor availability, crew size (is he a single guy/gal or does he have a full crew) sq ft size, #of units, significance of rehab, etc. My average turnaround is between 3-4 months between rehabbing and renting.

    I’m in the middle of one right now that I’m detailing step by step on BP if you care to follow.

    4Reply
  • Pablo Davidov
    OP
    Real Estate Agent · Fort Lauderdale, FL · Member since 2019 · 37 posts · 17 votes
    6y

    Hi @Jordan Mummau thanks for the great insight. I really appreciate you sharing your experience. Will definitely follow your content.

    0Reply
  • Kyle Tepper
    Real Estate Agent · Levittown, PA · Member since 2016 · 6 posts · 3 votes
    6y

    @John Morgan hey john, are you doing primarily single families or multi?

    0Reply
  • Whitney HuttenPro Member
    Investor · Boulder, CO · Member since 2016 · 1k+ posts · 1k+ votes
    6y

    @Pablo Davidov you have great advice here from @Andrew Postell regarding the seasoning period.  If you organize your purchase and know how you are going to carry out the loan, you shouldn't have a very short or no seasoning period.  For my strategies, the longest I have is 90 days now... and that is really how long it takes me to do the project anyway.  

    I didn't see where anyone answered your question regarding the rehab period.  If you underwrite the property well to include all hold costs in your business plan, while you aren't making income during the rehab phase, you should be able to recoup all of your costs plus on the project through forced equity.  Consider the hold a cost of doing business.  Perhaps this is what you meant, but I wanted to clarify :)

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    2Reply
  • Pablo Davidov
    OP
    Real Estate Agent · Fort Lauderdale, FL · Member since 2019 · 37 posts · 17 votes
    6y

    Thank you @Whitney Hutten I was definitely hoping someone would chime in also on the Rehab part of it. I appreciate it! The previous responses have been excellent in resetting my expectations for the seasoning period and it is great to hear that they are significantly shorter than anticipated.

    0Reply
  • Josh Johnston
    Member since 2019 · 51 posts · 36 votes
    6y
    Originally posted by @Andrew Postell:

    @Pablo Davidov I'll tag @Jon Crosby here too since there is so much confusion on this subject but you DO NOT have to face seasoning.  And in most cases we don't face seasoning.  Here's what I mean:

    On your BUY step we usually need a loan to BUY & REHAB the property. The loans that do these steps the best will lend you 75% of the ARV of the property. So when you get to the REFINANCE step, you can absolutely, 100% refinance that amount with ZERO seasoning. None. Now, don't get me wrong here....not every bank will follow this. So when we get PREQUALIFIED, before we buy any properties, we ask them if they haves seasoning requirement for refinancing. If they do, then we go to a different lender. I hope this makes sense how I am describing all of this.

    And the costs from when the property is empty is called HOLDING COSTS. So yes, calculating your HOLDING COSTS are critically important to a successful BRRRR transaction.

    Anyway, I hope this helps in some way.  Feel free to ask anything additional if you need.  Thanks!

    Thank you for this, Andrew! Once again, you've been a huge help to us.  My wife and I have been trying to figure out how to make this work with six month seasoning - that's just two properties a year (if you're lucky!) and this whole thread has been really helpful. Appreciate you all. 

    0Reply
  • John Burtle
    Real Estate Broker · IL · Member since 2016 · 284 posts · 178 votes
    6y

    So much knowledge in this thread. Thanks everyone. I didn’t start this topic but all the responses have helped answer a lot of questions I’ve had.

    1Reply
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