What happens if the market declines, preventing a refi. on a brrr

[Jacob Barnhart]

Basically If I get a short term loan in order to pay for a property and then a year later go to the bank to get the refinance to pay back the loan... what if the market declines or for some other reason I can no longer get a refinance to cover the loan.

Is that just when I throw my hands up and say "well, time to file for bankruptcy" or are there other options?

[Bryan O.]

@Jacob Barnhart your strategy is missing is capacity to pay. If you are doing a BRRRR and you cannot afford the payment without the refinance at the end then you need to build up a deeper savings, higher income, or look at less expensive property. I would hope that a HML would not loan to you if they know you cannot afford to pay them.

If you are expecting a correction, how much of a correction will it be? If that leaves the value of the home high enough to pay out your lender with a lower-value appraisal, then you are still okay. Make sure you've worked with the banks you plan to refi with prior to getting into any deal and verify that they are okay with the plan. Find out what they will lend and walk through their preapproval to make sure there are no red flags with you (debt to income, credit score, etc.).

There is always risk. Your goal is to mitigate those risks to a point that you are confident, then move forward. Make sure you job is stable, you have reserves, your credit is where it should be, you do your diligence on the city to ensure it has staying power, you do your diligence on the property, estimate costs correctly, etc. If you cover all your bases then the rest will be what it will be. Fun, huh?

Best of luck!