Little Neck, NY · Member since 2016 · 107 posts · 6 votes
i tried to follow BRRR strategy but running into problem....purchase a condo 4 weeks ago with 40% down with mortgage $100K at 4.3% interest rate...i have good tenant with 2 years lease and make good cashflow..~$500/ month after expense and mortgage.
the bank stated i pretty much max out my debt/income ratio and not be able to further any loan. i currently have $50K cash on hand...what options do i have to do more real estate deal with BRRR strategy?
even though my rental condo make good cashflow and i have stable work job , bank does not seems to care for that and just look at the debt/income ratio..tried big and locaL bank without success. not qualified even for HELOC
Investor · Chicago, IL · Member since 2013 · 2k+ posts · 1k+ votes
10y
Not sure whether your strategy is really BRRRR (Buy-Renovate-Rent-Refinance-Repeat)
If it is, you will create equity when you buy and renovate the property.
E.g., buy & fix a house worth $200K for only $120K. Let's say you put down $40K and finance $80K
Then you Rent it and Refinance it at 70% LTV allowing you to pull out your cash (original $40K) and get more cash (say $15K more cash by the time you pay all the closing costs).
By doing this, you now have more cash to buy your next deal (Repeat). In theory, you will not run out of cash to buy deals. In practice, some banks require seasoning (6 months usually) so you have to wait to purchase your next deal or raise more cash so you can do BRRRR with new cash.
If the issue is you can't refinance even while you create the equity, then the issue is you don't have the right lender. Find a portfolio lender to help you. They don't care too much about debt to income as much as conventional lenders do. There's also no limit to how many loans you can get as a result.
Have you looked into private lenders? There are a lot of mortgage brokers on this site you can network with. Look up @jerry padilla, he may be able to give some insights.
Have you thought about partnering with someone who can strengthen the balance sheet
Investor · Milwaukee - Mequon, WI · Member since 2010 · 5k+ posts · 7k+ votes
10y
@Jim Chung the first units are hard, it gets easier with the lenders when they start seeing your track record. First thing to do is to put a nice application package together that has all the information a banker could ask you for in a nice little binder. Second identify at least ten small local banks (10 branches or less) and call them ask to speak with their commercial lender. I am fairly confident that you find a few that are willing to work with you.
If that does not work find someone in your family who is willing to co-sign the loan with you. You may have to split the pie, but you still get half a pie and can refi them out of the loan later when your track record is long enough to show consistent success. Good luck
Rental Property Investor · Vancouver, WA · Member since 2014 · 308 posts · 144 votes
10y
Check out commercial lenders or portfolio lenders. I have a commercial lender who'll happily do what you are talking about, however, they need a seasoning of at least 6 months. I've got another lender who teased me with a 3 month seasoning timeframe. But, you'll need to set up an LLC and a few other minor things for that.
Rental Property Investor · Vancouver, WA · Member since 2014 · 308 posts · 144 votes
10y
Hi Jim!
The lenders I have at the moment, they only lend to their respective areas (Saint Louis, MO). However, there are national banks that do commercial loans like US Bank. I assume you're wanting lenders in the New York area?
Little Neck, NY · Member since 2016 · 107 posts · 6 votes
10y
Thanks guys for such great feedback. i will get the binder and organized few things together for the commercial lenders. dont really want to get family co sign involved with this. definitely will try the commercial lenders after seasoning. mortgage broker was the one told me debt/ ratio too high..
Then, do i need to open LLC for commercial lenders?
Investor · Chicago, IL · Member since 2013 · 2k+ posts · 1k+ votes
10y
Not sure whether your strategy is really BRRRR (Buy-Renovate-Rent-Refinance-Repeat)
If it is, you will create equity when you buy and renovate the property.
E.g., buy & fix a house worth $200K for only $120K. Let's say you put down $40K and finance $80K
Then you Rent it and Refinance it at 70% LTV allowing you to pull out your cash (original $40K) and get more cash (say $15K more cash by the time you pay all the closing costs).
By doing this, you now have more cash to buy your next deal (Repeat). In theory, you will not run out of cash to buy deals. In practice, some banks require seasoning (6 months usually) so you have to wait to purchase your next deal or raise more cash so you can do BRRRR with new cash.
If the issue is you can't refinance even while you create the equity, then the issue is you don't have the right lender. Find a portfolio lender to help you. They don't care too much about debt to income as much as conventional lenders do. There's also no limit to how many loans you can get as a result.