BRRR loan easier to get with all-cash purchase?

Question

I would like to specialize in BRRR, and my concern is actually getting the final R done. Between seasoning, lenders not going above purchase price, etc, it sounds like this step trips a lot of people up!

I have the ability to make the initial purchase in cash and fund the rehab out of pocket. If I do this, though, I want to be sure I can get my cash back out quickly, because I can't do my next deal without it! So my question is, should I buy with cash or should I get a mortgage on the initial purchase? Which is most likely to make the cash-out refinance happen as soon as the rehab is done?

I expect "talk to lenders" to be a common answer, but they won't tell me much about an after-repair cash-out refinance when I don't even have a property picked yet!

Thanks in advance!

Naveen Kumar · Answer

Here is the strategy that works best, if you are eligible for conventional FM loans, and can buy cash:

- Buy and close as a cash purchase - lets you get to Rehab right away;

- Get Delayed Financing (pull out 70% of appraised value, upto the purchase price) and potentially get all your money out;

- Rehab the property and Rent it out

- Refinance in 6-months

- and Repeat...

Alexander Felice · Answer

Talk to a lender before you purchase so you both have the plan decided and can execute as you progress.

Also, look up delayed financing, that's the best way to do BRRRR. Should be able to refinance once you have a tenant, no seasoning.

With lending, the devil is always in the details. Talk to lenders to find out what they can/will do and find someone who is competent and works hard.

Kerry Boyle · Answer

As a hard money lender with no seasoning requirements, you can finance the acquisition with us (or another lender) and cash-out refi as soon as the project completes for the new value up to 75%. Works the same way if you had paid cash originally. This requires non-owner occupied and in an LLC.

Connect and PM if you would like more details.

Carson Wilcox · Answer

For most people, maybe besides mega flippers with contractors on tap.... 6 months for rehab, marketing, tenant etc... is probably not all that much "waiting"... no?

If i was gonna do BRRR, I would use financing... just as risk management.  and flexibility... wouldnt want to tie up all my cash, or risk all my cash in one deal if they find a dead body under it or asbestos, or lawsuit or. or. or...

Chris Mason · Answer

Hi @James Free,

I have a feeling that you just read this thread, or that it's just a really small world.

If you buy all cash, yes you can start the cash out refinance using the FNMA Delayed Financing Exception the very next day. Yup, that's what we did there, except it was convoluted five ways from Sunday because the "all cash" actually included not one, but multiple, mortgages. Writing a check would be much less convoluted.

Loan amount will be capped at purchase price plus refinance closing costs on the cash out refinance, assuming the appraised value allows for it. You have to wait six months to get your rehab budget out via a cash out refinance where the loan amount is larger than the purchase price plus refinance closing costs, assuming you want an Agency 30YF.

Clarke Wegener · Answer

Hi @James Free,

I'm going to assume from your question you're just starting out and I'll answer based purely on my own experience. I always use mortgages and now in hind site I can see the benefit of starting that way. Use a local institution. A small bank or preferably a credit union. Get all the money you can from them on your first deal. Use half your money to rehab. That leaves the other half to purchase your second deal while the first is seasoning. Use credit cards, first deals rent and your day jobs wages to rehab the second deal. After all that use the two rents to hammer that mortgage down. Now when you go back to the bank you look like  you know what you're doing. They'll be dying to give you money. This way you're  building your resume so to speak and building a relationship with the bank which lowers your risk profile in their eyes. Million ways to go about it but that has worked for me. Good luck!

Brian Garrett · Answer

@James Free I'm in a similar situation as you and still deciding between paying cash for my first BRRRR property or getting a loan on the purchase end. Most likely I will try to obtain a loan for the purchase this way I can spread my initial "seed" money out over a few properties utilizing 25% down payments versus having it all tied up into one property and waiting to cash out refinance.

Brent Coombs · Answer

https://www.fanniemae.com/content/guide/selling/b2...

eg. ..."Properties listed for sale in the six months preceding the disbursement date of the new mortgage loan are limited to 70% LTV"..., and ..."The new loan amount can be no more than the actual documented amount of the borrower's initial investment in purchasing the property plus the financing of closing costs"...

If you want to pull out MORE, wait for the seasoning period dictated by their overlay policy. Cheers!

Chris Mason · Answer

Hi @James Free,

It comes from Fannie Mae.

Hi @Kenneth Garrett,

Gotta start with your scenario and your local REI-friendly lender and work backwards, not with the rules. :) Your scenario can change faster than Fannie Mae will change her rules.

Kenneth Garrett · Answer

@Chris Mason

Hi Chris I am not familiar with the FNMA Delayed Financing Exception.  How does that work and what are the rules? Thanks.

BRRR loan easier to get with all-cash purchase?

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