Unsuccessful BRRR situation

[Ricky Reese]

I've been reading and studying the excellence of using the BRRR method for real estate. I want to paint a hypothetical BRRR picture that I would like feedback from the BP community. Let's say I was off the mark with estimating ARV for the refinance. I use a hard money loan (12 months) for purchase and rehab. Purchase: 40k, rehab: 15k, total: 55k. I finish the rehab and I bring in tenants. I go for the refinance to get out of the short term loan but all appraisals (hypothetically) come to 45k. Would you still refinance into a conventional and owe the HML 10k?

[Dante Pirouz]

@Ricky Reese Yes as mentioned above the best you will get from most HMLers is 90% financing plus they will likely appraise the property so if you are paying too much at purchase they won't fund it. That said I did have a situation where our first appraisal didn't come in at what we needed to cover the HML loan...the appraiser was a cranky local who thought of the building as it was before the rehab and my team didn't have everything completely finished and cleaned up so he counted that against us. I was working with a loan officer who is also a BPer and he worked to get another appraiser scheduled while I buttoned up everything in the building, styled it to make it beautiful (great for the pics for listings) and, based on a tip from one of the BP forums, I created a property package with a listing of all the improvements, the costs, the vendors who did the work, comps in the area, the rent roll, pictures of the before and afters, etc. which I handed to the new appraiser when he showed up. That did the trick and we got a very fair but still conservative appraisal and got the HML paid off. You have to think on your feet, learn from BPers who have probably been through the same thing, and keep fighting for your business.