Hello BP fam,

Thought it about time to write up my first investment purchase (BRRRR deal out of state).

Refinanced my $ back out in just under 6 months using Delayed Financing, my rehab $ too.

In short, did exactly what Alexander Felice outlined on his BP podcast (#301), as well as from his posts at brokeisachoice
Many thanks man!!! Hope it can help others. Will try and make it short and sweet and go from start to finish.

Deal

Deal came from a wholesaler in Indianapolis. I'm from Indy but live in San Diego.  

Photos gave impression of basic cosmetic rehab. I purchased site unseen as photos were pretty good and I was tired of loosing out to other buyers or a highest and best situation. I locked up the purchase agreement within a few hours after estimating Rehab and ARV as best I could.

• Asking/Paid: $41,900
• Rehab: ~$15,000
• Closing fees: $1,846.57
• All In as listed on Settlement Statement: $58,746.57 (sum of all above, more on this below)
• Holding Costs: ~$470/month (HELCO payment ~$330/mo, Taxes/Insurance: $140/mo. Not included in below to make explanation easier)
• ARV (appraised): $83,000
• Rent (actual): $900/mo

Purchase

Purchase and Rehab funds all came from a HELOC on my condo in San Diego.

A month or so before I pulled the trigger I did 2 things.

• 1: Found a bank that could do Delayed Financing with me living out of state.
• 2: Called 2 title companies in Indy (ones that my wholesaler used) and asked if they could add funds, in addition to the purchase amount, to the Settlement Statement or HUD-1 form and hold them in escrow for me. In this case, $15,000 for the estimated Rehab. Both titles companies said no issue, though cost me $300 to do so.
  

I wired $42k (purchase amount) and the additional $15k (estimated rehab costs) to title company. At closing the wholesaler was paid from title company and I had my $15k in escrow that I could draw upon when I needed. Again…all I did was follow @Alexander Felice's steps he laid out in podcast and site.

Inspection was ordered the day of closing and showed some other basic problem areas that were easily fixed (various outlets not working, no fan/vent in bathroom), but nothing major. I was fortunate with the inspection.

Rehab:

I guessed.

I arrived at the rehab amount in a very quick and rough way. Estimated avg cost per sq/ft for flooring, paint and the basic dollar about for general fixes I could see via the photos. Came to a confident amount of about $15k.   

I was, and still am, plagued with "paralysis analysis", so if I was high or low on rehab amount by a few thousand I was OK with that.  Knowing and acknowledging this mental barrier helped.  If rehab cost $20k instead of $15k would I still move forward?...yes was the answer, so I did.

I got bids from contractors for the majority of updates myself as they were basic and didn't need a GC. Replace carpet for vinyl plank, add gutters, moisture barrier in crawl space etc...   Purchased the vinyl plank myself online (Home Depot sale) from San Diego and had the flooring contractor pick up the pallets in Indy.  Just put order under his name.  Easy. 

I paid for materials and the contractors with my credit card after each individual item was completed.  Then I called the title company and asked for a draw from my $15,000 held in escrow.  They mailed me a physical check and I used that $ to pay myself back/pay off credit card. Got credit card reward points as well.  First 3 draws were free if I recall correctly.  Easy.

The property manager I hired finished the rest of the work (painting walls, hanging & replacing doors, porch fixes) to get the unit rent ready. Paid them using same method above.  

This took little longer than 2 months. PM got it rented at the 3 month mark for $900/month. Probably a bit long on my end, but it was my first go.

Refinance….Delayed Financing

Conventional refi of a SFR is 75% of ARV after 6 months of seasoning.

I was at month 3 and wanted my cash back.

To refinance earlier than 6 months you have to use a “Delayed Financing exemption”.

Delayed financing lets you refinance a property for Up To 75% of the ARV (for a SFR) but not to exceed the purchase price of the home (what was recorded on your HUD or closing statement), excluding any rehab.  You can’t get additional cash back out with this method…only what you paid for it.

Pre apologies if my wording on above is not quuuuite right, but it's what I underwood.  My lender and I were on the same page in either case.

This thread Here and this good write up helped a ton.  Many thanks Robert and Andrew for these explanations. 

Fanny Mae guidelines on Delayed Financing Exemption.

So I paid $41,900 for the property but my additional $15,000 in estimated rehab costs my recorded HUD/closing statement was (closing costs included) $58,746.57 (see photo).

The bank, that I found before I made the move to purchase, approved me for delayed finance exemption and an appraisal was ordered.  It came back at $83,000. Woot!!

Side note...This process was a PAIN! Took 2-3 months and could be a whole other thread. I work at sea and have Sea Pay which is recorded differently on my W2 and varies month to month.  Add a condo rental in Tijuana with leases in Spanish increases the confusing fun. These two things were the cause of the delay. Gotta give the bank credit though, as it did work out in the end.

From a standard BRRRR deal this seems to have checked all the boxers. I was all in (purchase + repairs) for less than 75% of ARV.

75% of $83,000 is $62,500…and I was all in for $58,746.57.

A conventional refi (after 6 months) I should have been able to pull out $62,250 I believe.

With Delayed Financing I could only pull out 75% of the ARV up to my initial purchase price not to exceed 100% of HUD or $58,746.57 in my case.

Insert Alexander Felice's method here.  The Felice method I guess:). 

I was able to successfully refi out $55,030.43...at about 5 months after purchase. 

Eye roll I know, pretty close to 6 months. Guess I didn't have to delay finance after all. My sea pay W2 and Tijuana condo added a huuuuge delay.  Good learning experience any way. The $3,716.14 difference was in closing costs of the new mortgage.  Gotta figure out how to include those in next time! 

Also have to include holding costs during the first 3 month before it was rented (HELOC payments, taxes & insurance): $1410

• Rent: $900/mo
• New Mortgage PITI: $452.58
• Maintenance 10%: $90
• Management: $50 (actual)
• Vacancy Loss 10%: $90
• Cash Flow: $222.58

In the end this worked and got me a decent first rental for about $5k out of pocket.

Now off to get my next 100 if I can kick more paralysis analysis to the curb.

Hope this helps some folk!  

Photos below as well as highlighted Settlement Statement 

Before Before After before basic landscaping After