Rolling the dice to BRRRR?

Question

I have heard that finding a lender to refinance your property after buying, rehabbing, and renting it out can be difficult and that this strategy really leaves you at the mercy of the bank. In everyones opinion, does trying to do as much volume as possible to BRRRR SFRs and small multis a viable strategy considering many banks won't let you get more than 4, or 10 loans depending on who you ask. I understand portfolio lenders exist and can be hard to find, but I'm curious if people who rather move to higher price point properties such as commercial buildings to prioritize value per loan, or try your best to bundle multiple properties on one or a handful of loans?

Brent Coombs · Answer

"Rolling the dice" CAN be an apt description - if (after proper research) you're not confident whether you've found a deal or not, but you go ahead and buy it anyway!And FUTURE appraisals are by definition: guesstimates. But should be: CALCULATED ones!Certainly, your business relationship/s with Lender/s can make or break your scaling desires.But, no need to get ahead of yourself regarding multiple loans. How about: succeed with one first - and gain credibility thereafter as a natural consequence!?...

Kevin Romines · Answer

As mentioned above. One of the 1st things you need to do is nail down your lender. The lender may be able to help with the purchase and rehab, or maybe that is done by private or hard money, but the lender should be able to analyze your expected refinance and its numbers to get you pre-approved in advance of purchasing the property. By the time you get to the refinance, some things may change, appraisal values, market rents, but for the most part you should be in the ball park and can adjust as needed. Some lenders are limited to 4 financed properties, some can go as high as 10 financed properties? You would also want to find a portfolio lender so that once you hit the 10 properties you can then roll those into the portfolio loan and potentially have a clean slate for 10 new residential loans? You need to ask your residential banker how they view portfolio loans if they are held on a commercial loan that is either a non-recourse loan (meaning not personally guaranteed) or a recourse loan (personally guaranteed)? Does this count with their underwriting standards as a financed property and therefore you have gained nothing?Do your homework in advance, so once you start the ball rolling you know specifically what the game plan is and its now down to execution.

Joe Norman · Answer

I strongly suggest you establish a relationship with multiple mortgage providers prior to Buying your first BRRR. While underwriting guidelines can change, I think its important that you have your refinance strategy in place and have confidence that you will be able to get your money out and repeat after you are done your rehab. Talk to other investors in your area who have completed successful BRRR projects and ask who they have used to refinance, and be sure to talk to multiple lenders - not all loan products are created the same. Good luck!

Jeremy Lee · Answer

As some people have stated above, at some point the banks are going to cap you at a certain number of properties--where you will then have to move onto private lenders for blanket loans. While they typically have minimum requirements to secure a blanket loan, there really is no limit cap to how much they can offer and thus you can continue with your BRRRR plan. PM me if you want to discuss further.

Patrick O'Neill · Answer

There are several lenders I work with that have variable tolerances for DTI ratios and other borrower criteria. I've found that the lenders that keep their loans in-house, and not sell them off to a servicing company, seem to be less stringent and have more flexibility to write loans since their underwriting is done in-house. Good hunting.

Bill Goodland · Answer

Thanks for the input everyone. I understand I should focus on one deal at a time. But always love to bounce ideas off people more experienced than me to prioritize future strategies.

JD Martin · Answer

Most people move in a linear fashion, i.e. they get one, then two, then three refinances etc, then move the refis into a commercial loan, etc. Getting the 5th loan is easier than getting the 1st. Your track record is going to carry a lot of weight when you start talking about financing, and only crazy lenders are going to give you major commercial loans or bundle properties without any proof of success on your part.