All Forum Posts by: Brad Prahl

One of the hardest things I ran into on my first BRRR deal was finding a bank that would refinance the loan. I overlooked the difficulty of this and left me scrambling towards the end of the rehab. Many banks have a 6+ month seasoning period, meaning the earliest you will be able to refinance is 6 months from the original closing date. If your rehab is extensive and will take 6+ months, this isn't as big of an issue, but it can become a larger issue if it's a quicker rehab. Nobody wants to pay the hard money interest longer than they need to. I would start finding a bank (local banks are usually more flexible) that can do a refinance without a seasoning period early in the process.

The best way I have found reliable hard money lenders and contractors are to ask other real estate investors in your area. A lot of investors have go-to lenders and contractors. Asking local investors would give you the highest chance of finding quality lenders/contractors.

You seem knowledgeable and motivated to get this done. Don't let a lack of experience stop you; let the first couple deals build that experience and knowledge base. Real estate is more forgiving of mistakes than most other investments.

Good luck, and feel free to reach out if you have any specific questions.

I did a HELOC for one of my properties instead of a cash-out last year. Since everybody else said the cash-out refi option, I decided to tell you why I chose a HELOC for one of my properties. Hopefully, it gives you another way of looking at it.

A line of credit for ~225k (75% LTV) is for all intents and purposes the same as cash. This line of credit will still allow you to pay cash for flips or a BRRRR strategy. For example, buy a 100k house with the line of credit and either flip or use it for the BRRRR. The house is now worth 130k. If you treat it as a flip and sell or refinance using the BRRRR philosophy, you put the proceeds towards paying down the HELOC. The flip option pays off your HELOC, with the rest being straight cash in your, and the BRRRR method will allow you to pay off nearly 98k of the HELOC (using 75% LTV for the refinance). Now you have nearly your full 225K still in your line of credit that can be used again while still having the cash flow and payment on your first house.

Everybody is correct in saying the interest rate for the HELOC will be higher than the refinance, but the great thing bout a HELOC is you are only charged interest on the amount you draw out. Meaning if you have only taken out 100k of your 225k HELOC you are only charged interest on the 100k. For the refinance, you would be charged interest on the new balance of 225k (75% LTV). My bank also covered all closing costs if I don't close the account for at least 3 years, so my only upfront cost was the appraisal fee.

Either way, you are in great shape. I eventually went with the HELOC because I didn't want to permanently increase my mortgage payment by doing a cash-out. The interest rate may be a little higher, but if you use the BRRRR strategy or do a flip correctly, you won't have a high balance on your HELOC, so your interest costs will end up being lower than that of the refinance.

A little bit longer post, and hopefully, my hypothetical math made sense and this helps you come closer to finding an answer that works for you.