All Forum Posts by: Greg Huegel

@Kate Budroe

1) A 12 month lease looks better to a lender because the property would be treated as stable-leased versus unstable leased. This may directly impact the max LTV depending on the lender you source financing through.

2) Lenders will request rent payment verification during underwriting for leased properties, typically the previous 2 months. This directly impacts max LTV as well. Varies from lender to lender for months leased

3) The appraisal would be ordered out at the time of submission to underwriting for the refinance. As long as you schedule the appraisal inspection to take place following the completion of the rehab, the timing can actually work out in your favor to streamline the process. To provide more clarity, you could start the underwriting process while you finish the remaining rehab on the property. 

Hope this helps!

@Mike Morehead

Are you looking specifically for a local conventional lender or would you be interested in working with a Hard Money/Private Money lender? 

@Jeremiah Hammond,

If you purchase the property cash, fund the rehab out of pocket, and refinance into a long-term hold, it truly comes down to the numbers of the deal to determine how much you will be able to "pay yourself back". The main question comes down to what your expected ARV (after repair value) will be upon completion of the rehab especially considering you would be purchasing the property with cash.

A general rule of thumb for running the numbers on BRRRR deals is as follows (may vary from investor to investor depending on desired profit margin):

PP/As-is Value + Rehab Budget = 70% to 75% of ARV

@Account Closed, 

Some lenders offer financing options for Foreign Nationals, so this would not be an issue for both the acquisition and refinance transactions for a deal. The main factor applied to Foreign National deals compared to US citizens, is the max LTV you can receive, so I would recommend accounting for a higher down payment on the acquisition. The max LTV obviously depends on the lender you source the financing through. Most lenders who offer financing to Foreign Nationals will do 65% max LTV for purchases and 60% max LTV for cash out refinances.

Hopefully, this information helps! 

@Garrett Terrell, I am more than happy to help you with this deal. Shoot me a DM and we can start running the numbers. 

@Chase Ginther. We are still able to offer 80% LTV for cash out refinances, as long as you qualify. To provide some more clarity as to why most lenders cannot offer 80% LTV, this is due to the DSCR falling below the minimum requirement for the lender. With higher interest rates, properties do not debt service as easily at higher LTVs.

I am more than happy to run the numbers to see if we can help! DM for details.

Greg

@Bill DeLuca,

Randy explained this process perfectly. The main reason people move forward with the BRRRR method is to minimize the amount of cash required to acquire a property and refinance using their new equity in the property based on the after repair value. Upon refinancing great deals, typically your equity in the property is enough to cover the initial down payment, rehab budget, and any closing costs associated with both loans (short-term purchase and long-term refinance). To allow for this, most lenders have a loan-to-after-repair-value (LTARV) cap of 70 or 75% for the short-term rehab loan, if financing was used for the acquisition. Investors often obtain a short-term loan when doing the BRRRR method because your down payment will significantly decrease (20% versus 10% with most lenders). The seasoning period and max LTV depends on the lender you go through for the refinance. Some lenders can offer refinances on properties starting at 3 months but most will have a seasoning requirement of 6 months or more to obtain max leverage, as Randy stated.

For your scenario, see below for how your cash out proceeds would be calculated (not including your cash already in the deal): 
Cash out proceeds @ 75% LTV = (ARV * 0.75) - payoff - refinance closing costs - interest reserve escrow (first 3 months of mortgage payments)

Cash out proceeds @ 75% LTV = ($150k * 0.75) - $88k - $4,500 (estimated conservatively @ 4%) - $2,925 (estimated monthly mortgage payment of $975) = $17,075 (using estimated figures)

Once this figure is determined, then you can subtract the cash you put into the deal to see your true return for the deal. $17,075 - $15k - $3k - $1,300 = -$2,225. I included closing costs but keep in mind those are unavoidable for real estate transactions. I did not include the original down payment because more often than not in today's market, these deals are typically found through off-market deals or wholesaling.

If the second figure is positive, especially once you include your original down payment for the acquisition, you know if it is a good deal or not. This varies from investor to investor, for what they are comfortable with. Once the property is refinanced into a rental, if the property is cash flowing really well, it still may make sense because you would have paid yourself back in a short period of time. The reason Randy said it doesn't make sense to BRRRR this property is because the last R is repeat and if you are not net positive in cash following the refinance, it is harder to repeat and scale quickly.

Hopefully this helps!

Greg

The $50k/unit minimum value is for a multifamily commercial style loan. These types of loans have more qualifications/requirements and typically have a balloon note at 5,10, or 15 years compared to the traditional 30-year term. Most lenders consider single family residences as a property with 1 to 4 units and any property 5 units or more would be considered a multifamily property. Thus, you should not be running into the minimum property value requirement for a 4-plex. A large portion of lenders do not offer financing for multifamily properties and the ones that do, require a minimum per door value to be able to move forward. This is required because the appraisal reports are more complex for multifamily (MF) properties. MF appraisals are determined using the income based approach and are often broken down the number of units versus SFR valuations, which are based on sales comps within the past 12 months.

Jimmy,

You are currently running into the obstacle of scaling your business using Fannie Mae and Freddie Mac conventional conforming loans, which inevitably happens to everyone. This is a good problem to have! 

The best course of action moving forward, in my opinion, is to explore financing through a hard money or private money lender. Hard money and private money lenders typically will be slightly more expensive than the average traditional or conventional lender. However, the advantage of establishing a relationship with these types of lenders, is that you are no longer capped at a certain number of loans. Your business's potential would no longer have a ceiling.