I am currently working on purchasing a 3/1 Townhouse at a large discount with a investment loan with a 15 year fix. I plan on fixing it up and rent it out, then Refinance for a 30 year fix and of course enough to purchase another property to conduct the BRRR. How does the process work of Refinancing work? I understand you need a appraisal at some point, and the lender can usually give 60-80% of that value, but how does it work though. Do i just go to a lender after the appraisal and reno and say I want to Refinance this place? Also what if i bought it with just cash? Can I still Refi?
Key words- noobie - refinance - BRRR - Appraisal - buy and hold - Rental -
Yes you can take the equity out of your house after renovations are completed. You can also use cash to purchase. If you have the cash to do the project you will be saving on your costs of holding the property. You will also save on points and other closing costs. Some lenders will want to see that the loan has been Seasoned(in effect for a certain period of time). So it would be easier to use the Cash if you have it. Once your project is completed you will search for a lender and they will have the property appraised.
@Jacob Ham When you purchase the property (either with cash or a loan) and then you add value via a remodel and you want to do BRRR, you apply for a rate and term refinance and the appraiser will use the new appraised value and the lender will loan up to 75% of the new appraised value and pay off any existing loans. You would be doing a cash out refinance if you paid cash, and some lenders may require that you own the property for 6 months before they do the cash out refi.
I was under the impression that even if it was bought cash it still needed seasoned to pull full amount out. I called about this the other day after looking at a cash offer. Early pull you can get purchase amount. After seasoning I was able to get up to 100% out. Kind of surprised me
@Jennifer Beadles So to my understanding most people get Hard money loans because they are easier to get but with a high interest, but thats okay as long as can get force appreciation on the home and Refi with a more conventional loan and pay back the hard money and use the left over to buy another one?
@Fred Weinkauff I see, that makes alot of sense. The lender has the property appraised?
Yes, Appraisals are now done at arms length to keep everyone honest. The lender will contact an appraisal management company and they will hire the appraiser. Yes otherwise we could hire our best friend appraiser and have him come up with a BIG appraisal.
@Ben Seitz You're right, almost all lenders require you season the property for 6 months before you can do a cash out refinance, and if the new appraised value is high enough you can get back 100% of your cash.
@Jacob Ham I always use hard money loans when using the BRRR strategy, and that's mostly because the properties cannot get financing because they need to much work or a major system has a defect. I've bought properties that needed a roof and some exterior paint using HM and then went and refinanced less than 30 days later and the new appraised value was high enough to pay off the hard money so I bought those zero down.
Make sure you use a lender who does not have a seasoning overlay on the refinance. Some lenders want you to have seasoning even on the refinance in order to use the new appraised value.
@Fred Weinkauff Haha Wouldnt that be nice. well thanks again, Right now im working on the investment loan, If it doesnt work i have a hard money lender in mind. Probably going to give him call just to vent him out.
@Jennifer Beadles so typically the goal is to Refi right when you finish renovation
@Jennifer Beadles yes before seasoning which was 6 months to a year you could only get "full amount, as in purchase price". After seasoning they were allowing to give up to 100% of ARV value.!!!
@Ben Seitz wow and this was an investment purchase? That's pretty amazing that they didn't want any equity left in the deal. Great job!
@Jacob Ham Yep I try and get that hard money refinanced asap and into a 30 year fixed conventional loan. I also get HELOCs on my rentals as the values go up. They allow 70 LTV on a second
As someone who has completed several BRRRR deals and has counseled clients on how to execute them here in CT, I can't stress how on point @Jennifer Beadles remarks are on this thread. Great job.
@Jennifer Beadles really good info , I appreciate it
There might also be the option to purchase or refiance using a commercial mortgage and 20% down or 80% LTV. Can usually find a 25 year term around 5% with only 4 rate adjustments fixed to the prime rate or 5 yr US treasury bill. Commercial route also requires less to underwrite and you don't have to worry about maxing out at 10 mortgages or dealing with hard money lenders.
@Jassem A. You can get a commercial loan on a residential property?
All of my properties so far have been purchased with cash. God has been extremely good to me.
I have a commercial lender that sends out an appraiser and I take 80% available out in a remodel loan interest ONLY.
I've done several with this lender and they love to see my face. Currently I have a 3/2 user remodel and have 16,000 in Reno and looking to have approx 40k total invested.
Comps in area sell for 80's to low 90's.
This has what has made me love Realestate to where I even went out and got my license to sell!!!
Auto correct got me a few times🤗
Yes, many smaller banks and some credit unions will do a commercial mortgages against residential rental property
Any property non owner occupied is eligible for a commercial loan. In fact, it's great to see others mentioning this as the temptation to use personal type loans (FHA Fannie/Freddie) and tell the lender you are living there is pretty high for new investors.
@Jennifer Beadles thanks for the great info on the process. Could you provide a little more detail on what a "seasoning overlay" involves?