Questions about Refinancing after Renting (BRRRR strategy)

[Barry Rupisan]

Hello All - 

I am a newbie to the whole REI world. I have been reading up on the forums and listening to the podcasts but I cannot quite find the right answers to my questions.

I am thinking about using a hard money lender to help me with the down payment on my first and maybe second rental properties so that I won't have to use an FHA loan. After renting the property out, I plan on refinancing it so that I can pay the hard money lender back their money, then repeat as outlined in the BRRRRR Strategy.

BUT, when I refinance the house, will i be able to get a conventional loan for the entire amount even though I will no longer have the hard money use to initially pay for the down payment? I am not sure how that all works, I am a bit confused...

Any help is appreciated. 

Thanks in advance,

Barry 

[Christopher Giannino]

@Barry Rupisan

I might have misunderstood what you meant but from what I gather, you're looking to use a HML solely for the purpose of a down payment to acquire rental properties with "no money down?" If this is truly your intention, I think you're going to have a hard time finding a HML that will allow this, as well as, find it hard to eventually refinance out.

The purpose of the BRRRR strategy is to take a undervalued property (such a a distressed property) and force appreciation through the process of remodeling/upgrading that particular property. By upgrading the property, you'll increase the value and if done correctly, you'll be able to increase the value tremendously. This increase in value will allow you to refinance out of the hard money loan (or whatever vehicle you initially used to purchase the property) along with the money you invested into the rehab. The BRRRR strategy allows for the investor to have no or a very limited amount of money into the deal so the CoC ROI is very high or infinite.

If you solely use the HML just for the down payment and don't increase the value of property, then you'll probably have a hard time when you go to try and refinance out of the original loan.