Investor · SoCal · Member since 2021 · 12 posts · 19 votes
BRRRR Strategy - First property.... I was unaware about the 6th month seasoning requirement by most lenders, but I found two that would refi after the rehab is completed. What would you do in this situation or is there another option I am not seeing?
Purchase price: $137,500 ($44,000 in to the property... loan at $101,000) Appraisal: $180,000 ARV: $195,000 Est rehab cost: $7,500
Scenario #1: 75% LTV cash out refi at 4.25%... Cash out: $45,250 $6,250 still in the property.... principal and interest $719/month Cash flow estimated at roughly: $250/month
Scenario #2: 80% LTV cash out refi at 4.25%... 5/1 ARM mortgage. Prepayment penalty appears to only be in the first 3 years. Cash out: $55,000 All money out plus roughly $3,500 in pocket.... principal and interest $767/month Cash flow estimated at roughly: $200/month My plan would be to refi around year 4 or so before the adjustable rate kicks in.
Is ARM too risky or my plan should work roughly as expected? Did I miss anything on the ARM? Any help is much appreciated! Thank you
Real Estate Agent · Portland, OR · Member since 2020 · 278 posts · 136 votes
4y
Hey Vince!
Nice job getting a good return either way! As for the situation, what are you trying to optimize for? If you are looking to pull more cash out I'd go with the second option. If you are looking for more cash flow, the first option would work best.
It'd take ~16 years to get the same cash out from the first scenario as the second (~10k). If you are trying to build your portfolio faster I'd probably go with the second scenario. I would see what the potential fees would be for refinancing though. That might change things a bit more.
BRRRR Strategy - First property.... I was unaware about the 6th month seasoning requirement by most lenders, but I found two that would refi after the rehab is completed. What would you do in this situation or is there another option I am not seeing?
Purchase price: $137,500 ($44,000 in to the property... loan at $101,000) Appraisal: $180,000 ARV: $195,000 Est rehab cost: $7,500
Scenario #1: 75% LTV cash out refi at 4.25%... Cash out: $45,250 $6,250 still in the property.... principal and interest $719/month Cash flow estimated at roughly: $250/month
Scenario #2: 80% LTV cash out refi at 4.25%... 5/1 ARM mortgage. Prepayment penalty appears to only be in the first 3 years. Cash out: $55,000 All money out plus roughly $3,500 in pocket.... principal and interest $767/month Cash flow estimated at roughly: $200/month My plan would be to refi around year 4 or so before the adjustable rate kicks in.
Is ARM too risky or my plan should work roughly as expected? Did I miss anything on the ARM? Any help is much appreciated! Thank you
Still have this place…. Learned a bunch.
If your PM sucks, get rid of them faster…. You get what you pay for with a bigger firm that is cheaper.