First Rental Refinance - BRRR

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First Rental Refinance - BRRR

Arianne L.
Investor · Fort Walton Beach, FL · Member since 2015 · 568 posts · 966 votes

Just wanted to share the results of our first rental refinance / delayed financing. My husband and I are in our first year of our real estate investing career. Hope to encourage some of the newer people here. There are deals out there and some great returns to be had, just persevere!

The deal:

3/2 1200sqft SFR in a B neighborhood in Fort Walton Beach, FL. Bought this short sale for cash in February. This was listed at $104,000 on the MLS

Purchase price including closing costs - $73,257 

Property came with a tenant who signed a new 1 year lease for $975. No repairs were needed. Market rent is $1100-1200 but the old tenants were great so we decided to keep them at the previous rental rate.

Property Appraised at $134,000

Just closed on the delayed financing and got $70,600 cash back out, after closing costs. Total time from purchase to getting the cash back was 10 weeks. 

Income: $975

PITI: $522

Repairs and Capex reserves 10%: $97.50

Property management 10%: $97.50 

Vacancy 8%: $78 

Net monthly cashflow: $180

Cash on cash return: 81% 

Equity: $61,000

For $2,657 invested we are projected to average $180/month positive cashflow (though currently, we are getting $355/month since we are self-managing, and have no vacancy yet which would be 160% cash on cash return if we can keep it up - fingers crossed). 

Now, we can use that $70,600 in cash for the next deal we have lined up!

Thank you @Jerry Padilla and MB Financial for a quick and smooth transaction.

Thanks to @William Allen for posting about one of his BRRR deals which got us looking in the right direction

And of course @Brandon Turner and @Joshua D. for bringing us BP which helped us get started in real estate!

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Wendell De Guzman
Investor · Chicago, IL · Member since 2013 · 2k+ posts · 1k+ votes
10y

Arianne,

Congratulations! You took action and not fell into analysis paralysis.

@Jerry Padilla is awesome. I referred a ton of people to him :-)

@Brandon Turner's BRRRR is an awesome strategy. We use it in our rent to own properties to buy virtually an unlimited number of properties because you can always pull the investment out and buy another one.

Depending on the location, Rent to Own can actually be a better strategy specially for newbie landlords. There's no maintenance and repairs and you get better tenants who have skin in the game.

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  • Brent Coombs
    Investor · Cleveland, OH · Member since 2015 · 6k+ posts · 2k+ votes
    10y

    BRRRR = Buy, Rehab, Rent, Refi (after 6 month re-appraisal), Repeat. Cheers...

    0Reply
  • Rich Cavanagh
    Investor · Gulf Breeze, FL · Member since 2012 · 41 posts · 3 votes
    10y

    @James Rey

    BRRRR is an investment strat. Couldn't find the podcast that mentioned it but here's the article link.

    https://www.biggerpockets.com/renewsblog/2015/04/2...

    Grats @Arianne L.!

    0Reply
  • Brent Coombs
    Investor · Cleveland, OH · Member since 2015 · 6k+ posts · 2k+ votes
    10y
    Originally posted by @Nick Stoddard:

    @Brent Coombs the delayed financing only applies to cash purchases. 

    So it's not really a refi. Sorry for the confusion.

    Aah, so the OP paid $73k CASH and had clear title before asking the Bank for their own money back? Hmmm. Are you sure that's what the OP was saying?

    I didn't think it worked like a return-for-money-back exchange. But if so, good to know...

    0Reply
  • Arianne L.
    OP
    Investor · Fort Walton Beach, FL · Member since 2015 · 568 posts · 966 votes
    10y

    @Brent Coombs

    From https://www.fanniemae.com/content/guide/selling/b2...

    Sorry for the confusion. We did purchase the property for cash, and then immediately started the financing process afterwards.

    Because we met all the requirements for the delayed financing exemption, we were able to get up to our initial investment, but no more.

    Hope that helps!

    1Reply
  • JD MartinBusiness Member
    Moderator
    Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 16k+ votes
    10y

    Yes, it must have been done on some kind of delayed 95% financing or similar, as best as I can tell. My banks have always told me 0-6 based on purchase price, 6+ based on appraised value, 75% either way on investment property. Nevertheless, it's a great story! Congratulations!

    Podcast Guest on Show #243
    Skyline Properties
    View Page
    2Reply
  • Omar Ismael
    Agent / Investor · Newark, NJ · Member since 2015 · 95 posts · 60 votes
    10y

    Great job Arianne, 

    0Reply
  • John PowellPro Member
    Real Estate Agent · Kennesaw, GA · Member since 2015 · 308 posts · 153 votes
    10y

    @Arianne L. those results look great I'm new to the area but when you say class B what neighborhood are you talking about?

    0Reply
  • James ReyPro Member
    Ellicott City, MD · Member since 2014 · 60 posts · 23 votes
    10y

    @Rich Cavanagh  Thanks for the link!

    0Reply
  • Rich Cavanagh
    Investor · Gulf Breeze, FL · Member since 2012 · 41 posts · 3 votes
    10y

    Np! @James Rey!

    0Reply
  • William MorganPro Member
    Fix & Flip or Hold · San Luis Obispo, CA · Member since 2012 · 136 posts · 63 votes
    10y

    I have the same question.  I am aware that I can refinance a home immediately if I paid cash on it, however I have always been limited to some fraction of the purchase price.

      @Arianne L. How were you able to get 95% of you purchase price financed within 10 weeks?  Just so I am clear, is your lender applying the exception cited below and applying a loan amount of "no more than the actual documented amount of the borrower's initial investment in purchasing" while using the appraisal amount to derive the LTV ?

    @Chris M. can you weigh in?

    Delayed Financing Exception

    "The new loan amount can be no more than the actual documented amount of the borrower's initial investment in purchasing the property plus the financing of closing costs, prepaid fees, and points on the new mortgage loan (subject to the maximum LTV, CLTV, and HCLTV ratios for the cash-out transaction based on the current appraised value)."

    0Reply
  • Neil Henderson
    Specialist · Carolina Beach, NC · Member since 2016 · 390 posts · 496 votes
    10y
    Thanks for sharing Arianne L. You're following the model I hope to be using in about six months. Congrats!
    0Reply
  • Arianne L.
    OP
    Investor · Fort Walton Beach, FL · Member since 2015 · 568 posts · 966 votes
    10y

    @John Powell

    This particular house is in 32547. FWB is very small and you probably know the weird things about it. It can have very nice houses on one street and across you'll see mobile homes. This one is in the northwest part of time in Willow Bend. 3/2s there go for 1100-1200. 

    Everyone seems to have their own variation of the neighborhood scale, but when we look a them generally we consider

    A: Best neighborhoods in the area. The places most people would want to live if they had the choice. Usually these areas have the fewest violent crimes, the best schools, and the highest price tags.

    B: Still good neighborhoods people would be like to live in but they're not the nicest properties and also not as expensive. These areas still tend to to have low crime rates, and  good schools.

    C: Starting to look like a lower end neighborhood. Properties aren't as well taken care of, prices significantly lower. We'd still feel safe living there, but we would probably move to a nicer neighborhood as soon as the opportunity presented itself. Crime rates starting to rise, and schools tend to be a bit worse in these areas.

    D/F: We would rather sleep under a tree in a C neighborhood than live here. Highest crime rates, usually the worst schools, and tend to be areas I wouldn't be comfortable walking around alone. In F areas, I wouldn't even feel safe driving through.

    0Reply
  • Arianne L.
    OP
    Investor · Fort Walton Beach, FL · Member since 2015 · 568 posts · 966 votes
    10y

    @William Morgan Yes, you are correct, my lender applied a loan amount "no more than the documented amount of the borrower's initial investment in purchasing". The loan amount is exactly my initial investment which is $73,257. This was 100% of purchase price financed. Deduct Closing costs of 2,657, and we arrive at the $70,600 cash that's back in our bank account.

    The LTV is from a current appraisal. For delayed financing, you can finance up to the lesser of 70% of the appraised value, or your initial investment.

    So, if the property was only appraised for $90,000, we would have only been able to finance $63,000 not the full $73,257 we paid. Since the appraised value was $134,000, we are only at 54% LTV which actually resulted in a lower interest rate.

    This is not a loophole or a secret. Most banks will do delayed financing if it meets all the requirements. You can find a list of the requirements at https://www.fanniemae.com/content/guide/selling/b2..... in the "Delayed Financing Exception" section

    Basically, you buy for cash, and if you get a loan within the first 6 months of buying the property, you can pull all your initial investment back out, as long as it meets 70% LTV. So, if you want to get back 100% of your purchase price, you have to buy it with at least a 30% discount. There is another member here on BP who does this continuously, and I believe he even uses hard money for the initial purchase and it still qualifies for delayed financing.

    4Reply
  • Walter Key
    Realtor · Keystone Heights, FL · Member since 2015 · 340 posts · 118 votes
    10y

    Nice!

    0Reply
  • William MorganPro Member
    Fix & Flip or Hold · San Luis Obispo, CA · Member since 2012 · 136 posts · 63 votes
    10y

    @Arianne L. That's fantastic info, thanks!

    0Reply
  • Arianne L.
    OP
    Investor · Fort Walton Beach, FL · Member since 2015 · 568 posts · 966 votes
    10y

    @Michael Wentzel Just realized that I missed your question. I am a licensed agent as well. It took us 4 months from initially learning about real estate in August '15 to find our first deal (which was also BRRRed but technically is not a rental since we are living in it). This is one was our second deal. Under contract Dec '15. Short sale approval and closing in Feb '16. It was the shortest short sale I've heard of. 

    @Russell Bogan Awesome, are you looking at investing where you are now or over here in the panhandle? FWB and the surrounding areas are great places for buy and hold and fix and flips.

    @Penny Clark Thanks! I love BRRR cause it allows you to tap into equity but still keep the property. We've had great luck with short sales as well. We're closing on another short sale next week.

    1Reply
  • Rebecca B.
    Investor · Des Moines, IA · Member since 2014 · 57 posts · 5 votes
    10y

    Buy Rehab Rent Refinance Repeat. If an acronym has a dotted line under then hover over or click on it and a pop up will give you the meaning. 

    0Reply
  • Russell Bogan
    Investor · Jonesboro, GA · Member since 2014 · 26 posts · 9 votes
    10y

    @Arianne L. Yes, we currently have one rental and close on 2nd next month(hopefully). I haven't thought about investing back home yet. Just focusing on this south Atlanta area first

    0Reply
  • Alex Saleeby
    Rental Property Investor · Beaumont, TX · Member since 2015 · 161 posts · 77 votes
    10y
    Outstanding! Congratulations.
    0Reply
  • Brent Coombs
    Investor · Cleveland, OH · Member since 2015 · 6k+ posts · 2k+ votes
    10y
    Originally posted by @Arianne L.:

    @William Morgan Yes, you are correct, my lender applied a loan amount "no more than the documented amount of the borrower's initial investment in purchasing". The loan amount is exactly my initial investment which is $73,257. This was 100% of purchase price financed. Deduct Closing costs of 2,657, and we arrive at the $70,600 cash that's back in our bank account.

    The LTV is from a current appraisal. For delayed financing, you can finance up to the lesser of 70% of the appraised value, or your initial investment.

    So, if the property was only appraised for $90,000, we would have only been able to finance $63,000 not the full $73,257 we paid. Since the appraised value was $134,000, we are only at 54% LTV which actually resulted in a lower interest rate.

    This is not a loophole or a secret. Most banks will do delayed financing if it meets all the requirements. You can find a list of the requirements at https://www.fanniemae.com/content/guide/selling/b2..... in the "Delayed Financing Exception" section

    Basically, you buy for cash, and if you get a loan within the first 6 months of buying the property, you can pull all your initial investment back out, as long as it meets 70% LTV. So, if you want to get back 100% of your purchase price, you have to buy it with at least a 30% discount. There is another member here on BP who does this continuously, and I believe he even uses hard money for the initial purchase and it still qualifies for delayed financing.

    Wow! I never knew that a (higher) appraisal value done around the same time as purchase could trump the purchase value, regarding a Lender's approval of an "immediate" 70% cash out! 

    This thread should be read by all BRRRR wannabes!

    (Does the first name of that other "member here on BP" happen to be Joe?)...

    0Reply
  • Jerry Padilla
    Lender · Rochester, NY · Member since 2014 · 3k+ posts · 1k+ votes
    10y

    Buy Renovate/Rehab Rent Refinance....Repeat.

    Delayed Financing requires a new appraisal on the property at the time of financing, even if less than 6 months from purchase closing. As long as the LTV is supported, you can pull out up to a maximum of your initial investment (purchase price) plus closing costs.

    0Reply
  • Penn Young
    Investor · SF Bay Area, CA · Member since 2016 · 7 posts · 3 votes
    10y

    Congratulations @Arriane L. Great deal!

    1Reply
  • Huy N.
    Houston, TX · Member since 2013 · 481 posts · 189 votes
    10y

    the 1st deal that everybody dream of. congrat!

    0Reply
  • Huy N.
    Houston, TX · Member since 2013 · 481 posts · 189 votes
    10y

    @Arianne L. Do u have to wait 6 months for the refinance?

    Thanks

    Huy

    0Reply
  • Arianne L.
    OP
    Investor · Fort Walton Beach, FL · Member since 2015 · 568 posts · 966 votes
    10y

    @Huy N. Thanks! @Jerry Padilla can probably explain this better. But in order to meet the delayed financing exemption, you have to finance before 6 months after the initial purchase. In my case, I initiated the financing process 2 weeks after my initial purchase. But I could only finance up to my initial investment, even though it was appraised for $134,000. This is because I wanted to use the cash again as soon as possible for other real estate ventures. 

    0Reply
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