BRRRR strategy question

7 Replies

I have 3 rental properties that I own free and clear in Columbia SC that cash flow really well. I bought 2 foreclosures super cheap, renovated, rented them, and then when I attempted to refinance, I was told by multiple banks that for at least a year (2 years in one case) the property would only appraise for what I paid for it. As a result, I took out an equity line on the 2 instead and paid cash for a 3rd, and then used the cash flow from the 3 to pay off the equity line. (Weird strategy, but I was in my 20s, and it was all trial and error, mostly the latter) After recently discovering bigger pockets, I want to use my equity to circle back and expand our portfolio. I absolutely love our current cash flow, but in the interest of growth, if I refi the properties I have, and use the BRRRR strategy, has anyone run into issues with being able to refi after renovating? I don’t want to renovate, take a hit on my cash flow, and then have to wait a year to refinance. Are those days over?

The Fannie/Freddie rule is 6 months before you can refinance based on the ARV.

If you want to refinance sooner (for new appraised value) you would need to utilize a commercial/portfolio loan.

@Clint Harris If you are willing to go with a commercial loan, you should be able to lessen the seasoning period required or avoid it all together. Have you talked to any banks in Columbia about doing this? Or are you looking for conventional mortgages?

Yeah, I work with Drew Painter, Kris Whitley, and Rus Horton at First Community. The only issue I have with commercial is the inability to lock in long term low rate financing.

You should be able to get a 10 yr am at 20-25 yrs  on the commercial at 5 + %. I was able to get that in Dayton Ohio on a portfolio of 13 doors from a local credit union. I actually ended up doing something else but.......10yrs  is a good amount of time   

@Clint Harris big fan of Drew, he's a great guy. FCB is one of the more conservative banks in Columbia based on my experience. However, I don't know many commercial lenders that will lock in a rate long term. Have you tried any credit unions? I can send you a CU guy in Columbia that may be worth calling.

Thanks Will, I think I’m going to use Rus to go the conventional financing route, just want to make sure I’m not going to be stuck with the purchase price as the appraised value for a year or two. Thought I would check on here before calling 5-6 banks. And yes, Drew is a solid dude!

Howdy @Clint Harris

You are smart to worry about the Refinancing now (before you purchase a property). I always want it in place so I know what the terms and amount limit will be (75% LTV/up to $$$$). It makes the whole process easier and less stressful when I have my exit strategy set.

If you have to season the property before the refinance loan just make sure the interest only payments are included as part of the Holding costs in your calculations.  It’s part of doing business.

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