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

    @Chris Payne There are people who have done it. Again I haven't done HML -> delayed finance myself but I believe it is possible. Check out post #4 on this thread the person said they did HML -> conventional financing within 2 months https://www.biggerpockets.com/forums/50/topics/248...

    @Eddie T. Thanks! We are actually finishing 1 flip and are in the middle of the next. Flips are definitely more work than BRRR (and more taxes) so we are shopping for a new one like this hopefully that'll be our next deal

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

    Delayed financing can only be done if the house was purchased cash.

    [email protected]585-204-6923
    PrimeLending 4.8582 Reviews
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    0Reply
  • Chris Payne
    Rental Property Investor · Miami, FL · Member since 2015 · 52 posts · 3 votes
    10y

    Thanks @Arianne L. Thanks @Jerry Padilla

    0Reply
  • Jonathan Rodriguez
    Lender · Jackson Heights, NY · Member since 2015 · 21 posts · 2 votes
    10y

    Thanks for sharing this. Its really helpful to learn about delayed financing. I was wondering if you did an inspection before you signed a contract? When you speak to the agent or bank how do you go about knowing that no repairs were needed? I don't know if each short sale is different and some may be easier to see what is needed to rent out the home. Congrats on your deal and again thanks for showing in detail how you achieved it. 

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

    @Jerry Padilla Thank you for the clarification.

    @Jonathan Rodriguez Thank you! I actually offered on this property 40k below asking price and with that offer I budgeted replacing the roof, HVAC, flooring, paint and appliances which was around 20k. Ultimately got it for 72k (12k more than initial offer). I knew that there were people renting it for 975, and saw pictures of when before it was rented, so it was probably going to be better than what I planned for. However, I try to plan for the worst. I did inspect it before actually closing in it though, and it was a pleasant surprise when no repairs had to be made. The deal would have still been a good deal even if I had to spend the 20k of repairs I budgeted. I may have flipped it instead of holding it since cash on cash would have been lower. 

    0Reply
  • Lakshmi Nikitha Duggirala
    Investor · Chicago, IL · Member since 2018 · 43 posts · 13 votes
    8y

    @Arianne L. Properties that are foreclosed are still at market rate correct? Are properties cheaper in a short sale and how do you go about finding properties in a short sale? Is it worth the hassle? 

    Can someone please explain what delayed financing is please? 

    0Reply
  • Wai Fung
    San Francisco, CA · Member since 2008 · 65 posts · 9 votes
    7y

    Do you have a list of what your criteria is set at?

    0Reply
  • Maribel Aviles
    Orlando, FL · Member since 2018 · 7 posts · 0 votes
    7y

    Hi Arianne.  you mention @William Allen's BRRR deals that helped you guys get started. Would you comment on which one specifically if you remember? Thanks for keeping all of us updated. I just started the learning curve and I am devouring BP. Your input has been valuable to me as a female coming from the health care field.

    Thanks again!

    0Reply
  • Vinod Krishnan
    Flipper/Rehabber · Toronto, ON · Member since 2018 · 17 posts · 8 votes
    7y

    I know this post is more than 2 years old (and you had some exciting new posts since then); but I just happened to read this now.  Just wanted to say - Brilliant !!!

    0Reply
  • Taylor Hall
    Rental Property Investor · Navarre, FL · Member since 2019 · 17 posts · 3 votes
    7y

    @Arianne L. This is awesome! And so funny as I read the thread- I too am in fort Walton beach! Would love to connect with you !

    1Reply
  • Ameika Clark
    Member since 2019 · 2 posts · 1 vote
    7y

    Amazing!  Congratulations!

    0Reply
  • Matt "Roar" Gardner
    Real Estate Agent · Tampa, FL · Member since 2018 · 464 posts · 452 votes
    7y

    @Taylor Hall - I'm a realtor and investor in the area as well.  I highly recommend @Arianne L.'s meetup! She has them monthly in FWB. I also have a meetup in Niceville each month. If you are looking for a solid REIA, @Matt Robinson has a fantastic association that meets monthly on Okaloosa Island -- it's call the Professional Investor's Guild.  He does a fantastic job of educating and facilitating networking.  

    0Reply
  • Taylor Hall
    Rental Property Investor · Navarre, FL · Member since 2019 · 17 posts · 3 votes
    7y

    @matt  thank you for this! I will absolutely jump on these ! 

    0Reply
  • Taylor Hall
    Rental Property Investor · Navarre, FL · Member since 2019 · 17 posts · 3 votes
    7y

    @Arianne L. I think you can also get delayed financing with a heloc too - yes? The only way to do delayed finance though is to buy the house in cash and not finance any of it upfront. Right ?

    Example: 50k house. Have to buy it for 50k rather than 20 down and finance the rest - correct?

    0Reply
  • Arianne L.
    OP
    Investor · Fort Walton Beach, FL · Member since 2015 · 568 posts · 966 votes
    7y

    @Vinod Krishnan thanks we still use these techniques today!

    @Taylor Hall thanks! We attend the PIG group locally, host a little meetup every last Tuesday of the month 6pm at Twisted Grape in Shalimar, and also need to attend @Matt "Roar" Gardner's meet up soon! Looking forward to seeing you at one of those!

    You can also do a delayed finance with someone else's cash instead of yours (so it'll have to be a private money lender not a full blown hard money or regular lender). 

    But yes, in general its yours or someone you know's cash.

    Yes in the example: 50k house, you buy it with 50k cash, it appraises for 80k, you get 50k cash back out, have a rental that cashflows every month AND have 30k in equity, rinse and repeat

    2Reply
  • Jerry PadillaBusiness Member
    Lender · Rochester, NY · Member since 2014 · 3k+ posts · 1k+ votes
    7y
    Originally posted by @Taylor Hall:

    @Arianne L. I think you can also get delayed financing with a heloc too - yes? The only way to do delayed finance though is to buy the house in cash and not finance any of it upfront. Right ?

    Example: 50k house. Have to buy it for 50k rather than 20 down and finance the rest - correct?

    Yes, you can use a HELOC with delayed financing and this will be required to be paid at closing of the refinance. Below is the information on guideline for Fannie Mae. Freddie Mac is similar except they require all borrowed funds to paid at the closing of refinance.

    • Delayed Financing Exception is an exception to 6 months seasoning of ownership by the borrower required on a cash-out refinance.
    • Current appraised value may be used to calculate LTV/CLTV/HCLTV.
    • Borrowers who purchased the subject property within the past six months (measured from the date on which the property was purchased to the disbursement date of the new mortgage loan) are eligible for a cash-out refinance if all of the following requirements are met:o
      • The original purchase transaction was an arms-length transaction.
      • For the new refinance transaction, the borrower(s) must meet the borrower eligibility requirements of these guidelines (See Borrower Eligibility section). The borrower(s) may have initially purchased the property as one of the following:
      • A natural person
      • An eligible inter vivos revocable trust, when the borrower is both the individual establishing the trust and the beneficiary of the trust;
      • An eligible land trust when the borrower is the beneficiary of the land trust (new refinance loan cannot close in land trust); OR
      • An LLC or partnership in which the borrower(s) have an individual or joint ownership of 100% (new refinance loan cannot close in name of LLC or partnership)
    • The original purchase transaction is documented by the Settlement Statement, which confirms that no mortgage financing was used to obtain the subject property. (A recorded trustee’s deed [or similar alternative] confirming the amount paid by the grantee to trustee may be substituted for a Settlement Statement if a Settlement Statement was not provided to the purchaser at time of sale.)
    • The preliminary title search or report must not reflect any existing liens on the subject property.
    • The sources of funds for the purchase transaction are documented (such as bank statements, personal loan documents, or a HELOC on another property).
    • If the source of funds to acquire the property was an unsecured loan or a loan secured by an asset other than the subject property (such as a HELOC secured by another property), the Settlement Statement for the refinance transaction must reflect that all cash-out proceeds be used to pay off or pay down, if applicable, the loan used to purchase the property. Any payments on the balance remaining from the original loan must be included in the debt-to-income ratio calculation for the refinance transaction.
      • Funds received as gifts and used to purchase the property may not be reimbursed with proceeds of the new mortgage loan.
    • 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/HCLTV ratios for the cash-out transaction based on current appraised value).
    • All other cash-out refinance eligibility requirements are met. Cash-out pricing is applicable.
    [email protected]585-204-6923
    PrimeLending 4.8582 Reviews
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    3Reply
  • Manuel Hernandez Medina
    Pensacola, FL · Member since 2018 · 8 posts · 5 votes
    7y

    @Arianne L., I just listened to the podcast you did with BiggerPockets and was impressed by your determination and your "Why".  I have a similar one, which is to help my parents who are becoming elderly have little to worry abut during their retirement.

    I noticed you invest in the Fort Walton Beach area. I am a military pilot being moved to NAS Pensacola by the end of this year. My wife and I wanted to buy a home to turn into a rental in Pensacola, and were wanting to go visit the area in August/September to get a feel for certain neighborhoods. I was going to take the opportunity and plan this visit during a REI Group meeting and was curious if you had recommendations of certain groups or dates that would benefit my wife and I.

    Thank you again for sharing your story.

    1Reply
  • Chad Baker
    Crestview, FL · Member since 2019 · 3 posts · 4 votes
    7y

    @Arianne L. @Jerry Padilla   Investor trainee here...I noticed this clause Jerry's post..."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/HCLTV ratios for the cash-out transaction based on current appraised value)."

    So if I rehabbed a property, I still only get back out the cash I used to buy the property, correct?  So, to expand the example above, If I bought for $50k, put $40k rehab into it for a total of $90k, and it appraised for $170, I could still only get back out my original $50k plus acquisition costs.  To get more of my investment back I'd have to wait out the seasoning time.  Do I understand this correctly?

    Thanks much,

    cab

    1Reply
  • Jerry PadillaBusiness Member
    Lender · Rochester, NY · Member since 2014 · 3k+ posts · 1k+ votes
    7y

    @Chad Baker

    Yes......... Only the $50k.

    Unless....... You also include the renovations in the initial purchase.

    If you include on your closing statements (which vary state to state - HUD-1/ALTA statement ) the renovation costs - and have them charged at closing...... This renovation cost now becomes an initial closing cost and can be included with the max that you are able to pull out prior to 6 months. So this could also include the $40k in renovations allowing you to pull out up to $90k.

    [email protected]585-204-6923
    PrimeLending 4.8582 Reviews
    WebsiteView Page
    1Reply
  • Arianne L.
    OP
    Investor · Fort Walton Beach, FL · Member since 2015 · 568 posts · 966 votes
    7y

    @Manuel Hernandez Medina In Pensacola I'd recommend going to the Professional Investors Guild. We go to the Destin chapter. https://professionalinvestorsguild.com/
    Also sign up to pensacolacashdeals.com @William Allen puts out a lot of great deals every week  

    @Jerry Padilla just dropped a gold bomb I didn't know about. Definitely taking note of that renovation cost on closing statement trick for our next delayed finance BRRR!

    1Reply
  • William Allen
    Investor / Wholesaler · Nashville, TN · Member since 2014 · 1k+ posts · 667 votes
    7y

    Thanks for the shoutout @Arianne L.!  Nice to have friends looking out for us, hopefully we can find him some properties!

    0Reply
  • William Allen
    Investor / Wholesaler · Nashville, TN · Member since 2014 · 1k+ posts · 667 votes
    7y

    BTW, @Jerry Padilla is the man when it comes to financing!

    0Reply
  • Jerry PadillaBusiness Member
    Lender · Rochester, NY · Member since 2014 · 3k+ posts · 1k+ votes
    7y

    @William Allen

    Thank you Bill! I appreciate it!

    [email protected]585-204-6923
    PrimeLending 4.8582 Reviews
    WebsiteView Page
    0Reply
  • Brooke McGilvery
    Member since 2018 · 8 posts · 0 votes
    7y

    What was your strategy for financing? Hard money lender, savings??

    0Reply
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