Very interested in investing, but a bit hesitant.

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Very interested in investing, but a bit hesitant.

Rafael V.
Member since 2019 · 10 posts · 0 votes

Hello everyone, pleasure to be a part of this community. Seems like there's a lot of valuable information and people on this forum. I'm currently very interested in investing in MFH's. I'm 22, live in NJ, currently a student, and have around $50k saved up. I've been researching for only a week and trying to choose which investment strategy would be best. BRRRR caught my eye, but the only part I don't really understand is the refinancing part. I get that refinancing would provide cash for your next property, but won't refinancing the property after 6-12 months result in a higher mortgage for the initial property etc...? Also the BRRRR strategy might seem more appropriate to someone who has a full time job, why would the bank give me a loan if I'm a student. As I said I'm rather new to this so I apologize for the noob questions, but any insight would be appreciated. Thanks!

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Andrew SyriosPro Member
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Residential Real Estate Investor · Kansas City, MO · Member since 2014 · 10k+ posts · 5k+ votes
7y

The point about refinancing is to do one of either two things:

1) Pull out the money you invested in the property.

2) Refinance out the higher interest private loan you used to purchase and rehab the property.

We use a private loan to buy the property and do the work (usually 8-9% interest only) and then refinance out with a bank loan (usually at about 5.5%). We try to be all into the property for 75% of its value so we can pull out all or at least the vast majority of the money we invested. 

As far as getting a loan as a student, it could be tough. I would talk to a mortgage broker or lender about it. They may lend to you if you can get someone to cosign the loan, like a parent, who has income.

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  • Andrew SyriosPro Member
    Moderator
    Residential Real Estate Investor · Kansas City, MO · Member since 2014 · 10k+ posts · 5k+ votes
    7y

    The point about refinancing is to do one of either two things:

    1) Pull out the money you invested in the property.

    2) Refinance out the higher interest private loan you used to purchase and rehab the property.

    We use a private loan to buy the property and do the work (usually 8-9% interest only) and then refinance out with a bank loan (usually at about 5.5%). We try to be all into the property for 75% of its value so we can pull out all or at least the vast majority of the money we invested. 

    As far as getting a loan as a student, it could be tough. I would talk to a mortgage broker or lender about it. They may lend to you if you can get someone to cosign the loan, like a parent, who has income.

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  • Rafael V.
    OP
    Member since 2019 · 10 posts · 0 votes
    7y
    Originally posted by @Andrew Syrios:

    The point about refinancing is to do one of either two things:

    1) Pull out the money you invested in the property.

    2) Refinance out the higher interest private loan you used to purchase and rehab the property.

    We use a private loan to buy the property and do the work (usually 8-9% interest only) and then refinance out with a bank loan (usually at about 5.5%). We try to be all into the property for 75% of its value so we can pull out all or at least the vast majority of the money we invested. 

    As far as getting a loan as a student, it could be tough. I would talk to a mortgage broker or lender about it. They may lend to you if you can get someone to cosign the loan, like a parent, who has income.

     Appreciate the reply. So once we refinance the property it'll increase cash flow and receive all or the vast majority of the initial investment to then go and get another property to repeat the process? 

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  • Scott Passman
    Rental Property Investor · Batavia, IL · Member since 2018 · 452 posts · 672 votes
    7y

    @Rafael V. Whether or not you will increase cash flow after refinancing is dependent upon the terms of the original loan compared to the refinanced loan.  You are correct though that the point would be to be able to pull out most/all of the money you originally invested once you refinance in order to be able to use that same money again in future deals.   You certainly want to make sure the property will positively cash flow with the new refinanced terms or else it might not make sense to do so. 

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  • Rafael V.
    OP
    Member since 2019 · 10 posts · 0 votes
    7y
    Originally posted by @Scott Passman:

    @Rafael V. Whether or not you will increase cash flow after refinancing is dependent upon the terms of the original loan compared to the refinanced loan.  You are correct though that the point would be to be able to pull out most/all of the money you originally invested once you refinance in order to be able to use that same money again in future deals.   You certainly want to make sure the property will positively cash flow with the new refinanced terms or else it might not make sense to do so. 

     As said above most private loans have a 8-9% interest rate. So I just have to make sure that there is a positive cash flow in the acquisition stage of the deal so when I refinance (12 months) with the newer loan it'll result in an increase in cash flow. Is this correct? Thank you for replying.

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  • Scott Passman
    Rental Property Investor · Batavia, IL · Member since 2018 · 452 posts · 672 votes
    7y

    It really depends on the numbers you refi into and the equity you keep in the property. For example, you might be cash flowing $200/month with your original loan at 8-9% interest. When you refinance, you might not increase cash flow if the value of the home increases significantly and thus the debt service increases to a level that would eat into overall cash flow. Even though you might have a lower interest rate, if you increase the amount of your loan your overall monthly payment may go up despite the lower interest rate. Bottom line, run the numbers with your projected ARV to make sure the property would still positively cash flow with the new loan. Hopefully that makes sense? As long as the property still cash flows, if you can pull out your money and do it again then it is a win.

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