BRRRR = BRRSRR Thoughts

OP

Flipper/Rehabber · CO (colorado) · Member since 2019 · 73 posts · 30 votes

6y

@Kenneth Garrett Excellent suggestion. I've been looking into an LLC. Time to dig deeper.

Kyle Altenau

Tinton Falls, NJ · Member since 2020 · 108 posts · 85 votes

6y

Personally, I think that if you're looking to build a large rental portfolio, buying in single purpose entities is really the only way to go. Basically you'd have an LLC own each property. I just use the street address to name it. Basically the owner would be 123 Main St LLC. The owner of that would be something like Kyle Real Estate Holdings LLC or something like that. That LLC would own all of the street address LLCs and then I'd own that personally. I am not a lawyer though and it may be worth something speaking to a lawyer about sooner than later if you're really looking to grow your portfolio.

As far as Corona is concerned, I think it's going to start affecting our businesses in a lot of ways we didn't expect as this becomes more serious. I just posted a topic about local governments shutting down. I own a 4 family in Asbury Park, NJ. I tried scheduling a CO inspection for a 4/1 move in but they are no longer scheduling inspections. They basically just said tough luck. The neighboring town is scheduling CO inspections for late April. I am trying to push them to come up with a solution to this.

If you're refinancing you could run into similar issues. When you get title, the title company may be working diligently from home, but if they need certain documents from the county, or meter readings etc they may not be able to get that and thus will not be able to offer you a title commitment. Think about the closing itself. I know title companies in Philadelphia are only accepting mail in closing documents. They must be notarized though. Do you have a notary available during this? I wouldn't count on any closings in the next 30-45 days.

I'm also a lender and am moving my files along, but I feel like we are just hurrying up to wait (which I am happy to do, it's my job). For instance, one deal I am working on is a Sheriff Sale set to close in about 2 weeks. I think by then, the entire Sheriff's office real estate division will be closed. That's ignoring the title company issues I previously mentioned.

If you have tenants in and paying then hopefully it's business as usually. You have a small sample size so things could go either way with rents at this time. You might see 100% payment through this or 0%. Larger buildings will definitely see a more even spread because of the bigger sample size. You'll get through it though.

8 Reply

Rhea GoldsmithPro Member

Real Estate Agent · Neptune City, NJ · Member since 2017 · 3 posts · 2 votes

6y

@Kyle Altenau I am an investor and real estate agent in Neptune City, NJ. We received this on Wednesday from Jarrod Grasso, CEO of New Jersey Realtors:
We know there are concerns about how the closure of some municipalities will affect real estate transactions, specifically deed and title searches, fire inspections, and certificate of occupancy inspections. We have contacted the Governor’s office and are actively seeking guidance from the Department of Community Affairs.

In certain municipalities where they are waiving the Fire Certificate and Certificate of Occupancy inspections, your client should check with the municipality and consult their attorney for guidance.

Pete Storseth

Investor · Houston, TX · Member since 2019 · 274 posts · 61 votes

6y

@Alan Mills

Hard money let's you use bridge loans, then refinance in as few as 3 months. No seasoning there.

Kyle Altenau

Tinton Falls, NJ · Member since 2020 · 108 posts · 85 votes

6y

@Rhea Goldsmith unfortunately Asbury city hall hasn't been very helpful. I am going to keep trying. I don't know what they expect people to actually do. I think a temporary CO across any new move ins is really the only thing that can be done. People need to be able to move in.

@Pete Storseth I am a bridge/hard money lender. The only reason I'd recommend against using any type of short term loan in this scenario is that it is most likely going to be cost prohibitive if you buy and rehab with cash. After you pay closing costs and points (typically at least 2% especially for no pre payment penalty) you're better off just waiting. If you're going to have to wait on 6 month seasoning, it'd most likely be better from a cash velocity perspective to use hard money for the acquisition and try and use remaining capital to do multiple deals at once.

Pete Storseth

Investor · Houston, TX · Member since 2019 · 274 posts · 61 votes

6y

@Kyle Altenau

That's right. Can you restate that? You had two points, the latter answered his question about scaling faster.

[email protected]979-218-2286

Joseph CacciapagliaBusiness Member

Lender · San Antonio, TX · Member since 2020 · 1k+ posts · 1k+ votes

6y

Most of the people that I know using the BRRRR strategy are using HML for close to 100% of their purchase and rehab costs. They can refinance that loan with no seasoning, because they aren't taking cash out. Usually they are only out of pocket for closing costs on both loans. Unfortunately, I don't know anyone that is consistently executing the strategy with a cash purchases, so I'm not certain I have a solution for you. You should ask your lender if at this point you went out and got a bridge loan, could you then refinance with them with no seasoning. I'm not sure if they would still count it as "cash out" at that point or not. You would pay double closing costs, but that's it.

This is a great example of why it's important to contact your service providers ahead of executing any business plan. I've seen a lot of people run into this issue, and it could have been avoided by simply contacting your lender before starting, and talking about your plans. A good lender would have identified this problem with just a short conversation. The problem is, podcasts, and even books, can only go into so much detail. It's going to become more important to do this leg work in the coming months, because the rules are probably going to change, and all the educational material out there will be outdated.

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3 Reply

Whitney HuttenPro Member

Investor · Boulder, CO · Member since 2016 · 1k+ posts · 1k+ votes

6y

@Alan Mills. I know so many investors new to BRRRR who buy all cash and get stuck (I did it too!). Here is a handy guide on how to finance a BRRRR. Here is another guide on how to survive the refinance process.

PM me with Q's!

10 Reply

Eli Gilbert

Investor · Cleveland, OH · Member since 2019 · 103 posts · 22 votes

6y

@Joseph Cacciapaglia

In your scenario are they getting the HML and long term loan from the same provider, or separate lenders?

(If it is separate lenders, would the second long term lender not require a seasoning period?)

Thanks

Eli

[email protected]979-218-2286

Joseph CacciapagliaBusiness Member

Lender · San Antonio, TX · Member since 2020 · 1k+ posts · 1k+ votes

6y

Originally posted by @Eli Gilbert:

@Joseph Cacciapaglia

In your scenario are they getting the HML and long term loan from the same provider, or separate lenders?

(If it is separate lenders, would the second long term lender not require a seasoning period?)

Thanks

Eli

Many lenders won't require seasoning, if it's not a "cash out" refi. In the scenario that I mentioned, they have little to no cash in the deal to begin with, so they are really just doing a rate and term refinance. There are lenders that will do the rate and term refinance with no seasoning, so it doesn't have to be the same lender.

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Jay HinrichsBusiness Member

Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes

6y

Originally posted by @Kyle Altenau:

Personally, I think that if you're looking to build a large rental portfolio, buying in single purpose entities is really the only way to go. Basically you'd have an LLC own each property. I just use the street address to name it. Basically the owner would be 123 Main St LLC. The owner of that would be something like Kyle Real Estate Holdings LLC or something like that. That LLC would own all of the street address LLCs and then I'd own that personally. I am not a lawyer though and it may be worth something speaking to a lawyer about sooner than later if you're really looking to grow your portfolio.

As far as Corona is concerned, I think it's going to start affecting our businesses in a lot of ways we didn't expect as this becomes more serious. I just posted a topic about local governments shutting down. I own a 4 family in Asbury Park, NJ. I tried scheduling a CO inspection for a 4/1 move in but they are no longer scheduling inspections. They basically just said tough luck. The neighboring town is scheduling CO inspections for late April. I am trying to push them to come up with a solution to this.

If you're refinancing you could run into similar issues. When you get title, the title company may be working diligently from home, but if they need certain documents from the county, or meter readings etc they may not be able to get that and thus will not be able to offer you a title commitment. Think about the closing itself. I know title companies in Philadelphia are only accepting mail in closing documents. They must be notarized though. Do you have a notary available during this? I wouldn't count on any closings in the next 30-45 days.

I'm also a lender and am moving my files along, but I feel like we are just hurrying up to wait (which I am happy to do, it's my job). For instance, one deal I am working on is a Sheriff Sale set to close in about 2 weeks. I think by then, the entire Sheriff's office real estate division will be closed. That's ignoring the title company issues I previously mentioned.

If you have tenants in and paying then hopefully it's business as usually. You have a small sample size so things could go either way with rents at this time. You might see 100% payment through this or 0%. Larger buildings will definitely see a more even spread because of the bigger sample size. You'll get through it though.

our west coast title companies are doing notaries by appointment.. Also for me I have in house notary so no issue for me.. I closed two philly deals this week.. all of my closings all around the country are mail away.. so its just business as usual.. those that need or want to go to physical closings which i personally have not done in years.. I can see this coming as a big upset to them. simply because thats the way they always did it.

Most counties allow electronic recording as well.

the bigger issue I see is the CO for landlords in states that require that.. there is no such requirement on the West coast or much of the mid west. you get a CO only on new construction not rentals.

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Jay HinrichsBusiness Member

Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes

6y

Originally posted by @Joseph Cacciapaglia:

Most of the people that I know using the BRRRR strategy are using HML for close to 100% of their purchase and rehab costs. They can refinance that loan with no seasoning, because they aren't taking cash out. Usually they are only out of pocket for closing costs on both loans. Unfortunately, I don't know anyone that is consistently executing the strategy with a cash purchases, so I'm not certain I have a solution for you. You should ask your lender if at this point you went out and got a bridge loan, could you then refinance with them with no seasoning. I'm not sure if they would still count it as "cash out" at that point or not. You would pay double closing costs, but that's it.

This is a great example of why it's important to contact your service providers ahead of executing any business plan. I've seen a lot of people run into this issue, and it could have been avoided by simply contacting your lender before starting, and talking about your plans. A good lender would have identified this problem with just a short conversation. The problem is, podcasts, and even books, can only go into so much detail. It's going to become more important to do this leg work in the coming months, because the rules are probably going to change, and all the educational material out there will be outdated.

Prior to the GFC this is exactly how all the turnkey product was sold in the mid west.. as a HML at the time I was funding 40 to 60 of these a month. putting investor into title we would already have them pre approved for the take out just subject to a 442 walk through by the apprasier and boom we got paid off investor had their long term loan and I only required 1k down to get my loan.. then they would get 5 to 10k cash back when they closed and if it all went well they had 100 a month to 150 a month in cash flow..

well it worked until it did not.. the cash back that was suppose to go to reserves ended up going to buy the new car or the Jet ski.. the 100 a month turned into 100 negative and well lots of those folks ended up losing their investment properties because they were not properly capitalized and took all the equity out .. so yes it can be done.. but you better have a nice chunk in the bank for a rainy day .. like what is happening now.. 5k or 10k of cash reserves is simply not enough to be in the landlord business.

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Eli Gilbert

Investor · Cleveland, OH · Member since 2019 · 103 posts · 22 votes

6y

@Joseph Cacciapaglia

Ok great, thanks for clarifying

James Wise

Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 30k+ posts · 20k+ votes

6y

Originally posted by @Alan Mills:

Hi BP,

I’d like to generate a fresh thread to address an issue that is catching many new investors by surprise: The 6-month Seasoning period.

I'm now on my 3rd Rental. It was time to give the BRRRR strategy a try. I purchased my first multi-family property property - a duplex - with cash. Rehab is under way (also cash) and it is looking great at 45 days. Time to get cash-out refinancing lined up, now at about 45 days out from completion - and hopefully tenant occupancy.

Enter the 6-month Seasoning requirement. For a new investor, this "S" really came as a surprise on my first BRRRR deal. It was just a bit of a left hook for me to learn about how Fannie & Freddie require 6 months on title before funding a cash out refinance, particularly on an investment property. I have since put in a fair amount of hours trying to track down options, such as local and national portfolio lenders (which always seem to be at a higher APR), I've learned a bit about delayed financing, and I've had a few conversations with hard money lenders, which doesn't seem to be the best way to go this time being that I did already have the cash upfront to make this project possible.

I’m hoping that we can generate some new perspectives on this issue in today’s market, particularly with the onset Coronavirus issue now entering into market conditions. (Maybe this is a non-issue?) Or perhaps there is a podcast (or other BP posts) that I missed that goes into more details on this issue. I enjoyed reading @Brandon Turner’s book, but it strikes me that this issue is reasonably important and doesn’t receive as much attention as it could use.

For a relatively green investor without a large amount of capital on hand, BRRRR-ing 2 properties per year seems like a slow way to get out of the starting gate, albeit perhaps one of the safest ways to get going.

In my specific situation, I can certainly carry the property for the full 6-months on title that is required by most lenders to get the best cash out refinancing options available. But is that really the best way to proceed in my current situation? What other advice would you suggest when it's time to move onto my next BRRRR deal? I really enjoy rolling up my sleeves and doing the work, but I could use some advice making some important decisions now and in the future.

Thanks BP world. BP Rocks!

Alan, investing in Colorado

Not all lenders require a 6 month seasoning. Many do, but not all of them. Hit the phones and reach out to as many loan originators as possible to see what your options are.

Christopher Park

Rental Property Investor · Ashburn, VA · Member since 2019 · 7 posts · 2 votes

6y

I would suggest asking local lenders if they're able to do portfolio loans. Contrary to popular belief, you don't need an LLC to get this type of loan. I got a portfolio loan last year and did a cash-out refinance on a property that I paid all cash for within 1-2 months.

An alternative to a portfolio loan is delayed financing. You can get up to the total cost of the purchase + rehab as long it makes up 70%-75% of the ARV. To do this, you need to put the rehab costs on the HUD before closing. If you do this right, you can do a cash-out refinance on a property with no 6 month seasoning period.

I believe BP has multiple posts on both of these types of loans if you'd like more information.

Patrick Menefee

Real Estate Coach · Charlotte, NC · Member since 2016 · 399 posts · 341 votes

6y

@Christopher Park on the delayed financing piece, am I correct in saying this requires a true cash payment and not a HML or private money?

I talked to my lender about this but he said it only works with a 100% true cash purchase

Christopher Park

Rental Property Investor · Ashburn, VA · Member since 2019 · 7 posts · 2 votes

6y

@patrick menfee That's correct. A lender will most likely ask for the last few months' bank statements and ask where your recent funds came from if there are any large deposits. That's what I've experienced recently.

OP

Flipper/Rehabber · CO (colorado) · Member since 2019 · 73 posts · 30 votes

6y

@Kyle Altenau

Thank you so much for the detailed response. This is extremely helpful information, and I particularly appreciate your suggestion of individual LLCs being owned by a larger umbrella LLC, that is then owned by you. wow.

I’m sure I will demonstrate my naïvety by asking, but what is a “CO inspection”?

You are right, that closings in the next 30 to 45 days might be impossible. It will be up to our local banks to provide notary service. I have used any number of them in the past, but I appreciate the heads up on this issue too.

I bought the property vacant, and the rehab for both units is it coming along nicely, yet there are clearly now delays in work by my contractor and subcontractors due to the virus. This was expected. I do feel confident that the property will be in excellent shape, and I will likely find tenants very quickly for both units. The inside will show like brand new 2020 properties.

Christopher Park

Rental Property Investor · Ashburn, VA · Member since 2019 · 7 posts · 2 votes

6y

Originally posted by @Patrick Menefee:

@Christopher Park on the delayed financing piece, am I correct in saying this requires a true cash payment and not a HML or private money?

I talked to my lender about this but he said it only works with a 100% true cash purchase

I couldn't tag you for some reason but I responded above.

Patrick Menefee

Real Estate Coach · Charlotte, NC · Member since 2016 · 399 posts · 341 votes

6y

@Alan Mills I’ve been looking into this a lot lately and there are a number of options. Primarily it means networking your *** off to find a mix of private money, credit lines, hard money, and some of your own capital in order to make multiple purchases and scale while still adhering to the seasoning (at least for the options I’m pursuing)

Unless you’re flush with cash to make every purchase that way and use delayed financing, the likely option up front is to use hard money. This will still require a down payment, but that can be sourced from a credit line, private money, etc. plus maybe a little of your own money. It’ll allow you to grow and transact enough to qualify for better terms and less down

Combining different funding sources doesn’t eliminate the seasoning piece on the refi, but does allow you to keep buying until you refi and can continue the cycle

Patrick Menefee

Real Estate Coach · Charlotte, NC · Member since 2016 · 399 posts · 341 votes

6y

@Christopher Park ok got it, thanks. That’s where i was at too, just wanted confirmation that my lender wasn’t blowing smoke or had different criteria

OP

Flipper/Rehabber · CO (colorado) · Member since 2019 · 73 posts · 30 votes

6y

@Pete Storseth

Yes, I have touched in with a couple of different Hard money lenders to see whether or not I want to do a bridge loan to get me past the six-month seasoning on title. I think that would certainly solve the problem, but I would also pay considerably for it, both in interest rate, and points. So the question remains, is it worth it?

@Kyle Altenau is also addressing this issue. I know things are complicated otherwise right now, but waiting an additional three months is a big deal when it comes to time and money and BRRRRing properties. waiting six months and doing two properties per year is much different than turning them around in three months and doing four properties per year.

It looks like you also answered the acronym question that I previously had: CO Inspection = Certificate of occupancy inspection? 😎

It does look like I missed the boat regarding using A hard money lender this time up. But being that I was able to complete the purchase and rehab is in cash, I think this may have been a wise route to go this time. But I do like the idea of considering hard money lender’s moving forward, and using cash to help get in the more properties faster. Thank you for that suggestion.

Pete Storseth

Investor · Houston, TX · Member since 2019 · 274 posts · 61 votes

6y

@Alan Mills

The question is always if it's worth it. If you can have good cash flow despite higher interest rates than 3 or 4%, it is.

The highest I've seen on amortized hard money loans is 6.99, after three months at 10%? That's fine for most good deals

OP

Flipper/Rehabber · CO (colorado) · Member since 2019 · 73 posts · 30 votes

6y

@Joseph Cacciapaglia

Well stated on many points. I did have a lender set up who did confirm for me that he could get me 75% cash out refinance on the property prior to purchasing it. So I did check that box ahead of time. The question that this novice investor didn't know to ask what is the topic of this string: "S" = 6-month Seasoning. Alas, I know I will get this property rented quickly as rentals are in high demand in this market. So, worst case scenario is that I simply get the property rented and use the cash flow to sustain payments against my HELOC (The source of my cash funds for both purchase and rehab) for another 3 months until seasoning is complete, And then I start shopping around for a Fannie Mae or Freddie Mac conventional loan on the cash out refinance. I really appreciate your knowledge regarding that most people using theBRRRR strategy are using Hardmoney lenders for both a purchase and rehab costs. I didn't realize that that was the best way to go, but will certainly be looking to investigate those options on my next deal. Thank you for that!