Question about the BRRRR Method

[Christina Galdieri]

This is a SUPER newbie question but here goes. Lets say that I purchase a home cash and want to BRRRR. When is the time to refinance? 3 months, 6 months, 1 year?

[Jason Wray]

Christina,

Great question and luckily for you there is no wait because when you purchase using all cash there is no "title seasoning". Typically there is a 6 month wait when you finance with a mortgage in order to use a new appraisal but not with an "All cash" purchase. You get to be the judge on time so the questions comes down to two things. How much do you need out and how quickly?

If you do a 'Delayed financing" loan a.k.a cash out you can only use the purchase price +plus any repairs or renovations on top of that number to take out 80% LTV. Prior to the 6 month mark you cannot use a "New Appraisal" you have to use the purchase price + repairs costs as the total and get out 80% of that number.

If you decide to wait 6 months you can then take out 75% LTV on the new ARV - New appraised value after the renovations which might or might not be a substantial difference. Use this as a guide. Fake numbers:

Purchase all cash $200K you put in $30K in renovations= $200K+$40K=$240K X 80%=$192K out with no 6 month wait same month you purchase. (Subtract $6K+ for closing costs)

Purchase $200K+$40K renovations (Wait 6 months) new ARV (Appraisal comes in at $295K You would get 75% LTV X $295K=$221,250.00 (Subtract $8-$10K closing costs)

About $25K difference but keep in mind you can always refinance down the road that money is not trapped. The first option just allows you access to your capital or future down payment for another investment property. So in the end it also comes down to how fast do you want to build your REI portfolio. More doors more income and if you can speed up the process its a faster way to hit your goals.