The BRRRR Book's Strategy - Only Good in Theory??

Question

I just got this BRRRR book, and it sounds like an awesome strategy on paper, but…. every time I’ve gone to a bank to refinance a rental – even one we owned outright and bought with cash, they have said that they will not do that unless it’s a primary residence. Am I missing something here?

In short, I’ve tried this strategy before, and neither big banks, small banks, or mortgage brokers will let you do this. Is this real? Please explain.  I feel like I just got suckered into buying another book of fluff.

Thanks!

Kevin Sobilo · Answer

@Cody Scholberg, BRRRR is probably the most solid strategy around.

I would go to a local/regional bank or credit union and talk to their commercial lending department. One of the most common ways to refinance is with an adjustable rate commercial mortgage. These are portfolio loans (held by the bank and not resold).

I would expect something like a 15 year adjustable rate loan at prime + 1% with a 75% LTV. I think that would be a common scenario.

Account Closed · Answer

@Cody Scholberg I’ve been attempting to BRRRR out of state for a few months now. For me the hardest part has been the competition from other cash buyers. Good deals are gone in a matter of days, sometimes hours. You need to be able to do your due diligence ASAP and make an offer. Don’t think you can spend a few days analyzing a deal because someone will buy it with zero contingencies in a heartbeat.

Alex Bekeza · Answer

@Cody Scholberg 99% of mortgage brokers spend their time working on people's primary residence.  You should look around for a source specializing in what you're looking for.

Prior to meeting title seasoning requirements you'll be limited to a LTC based loan typically. Meaning say 75% of your purchase price + improvements.

However, a real good BRRRR is contingent on forcing appreciation so you don't want to be limited to cost.

@Mike McCarthy is correct that most bank require 6 months title seasoning to cash out based on the new appraised VALUE.  However, I know of a couple programs doing it at 90 days although with a higher DSCR requirement.  Fair enough right.

Hope this helps a bit!

Cody Scholberg · Answer

Account Closed  - indeed.  Here in Atlanta, we had to compete with big investor groups who were buying 200-400 houses per month.   I know that struggle.  You're right.  It is difficult.

John Morgan · Answer

@Cody Scholberg

I just did this last week and it worked out great. I purchased my first rental investment four years ago for 135k with cash. I just did a cash out refi on it. The bank I just used gave me a loan for 75%  of the appraised value (appraised at 195k and they gave me 140k cash). The loan is a 15 year fixed at 4.125% with 1.9 points. Not bad, not great for an investment loan. The process was easy and quick.  I took the cash and made a low cash offer to buy another SFR and closed on it last week. I’m putting 25k into the rehab and planning on doing a cash out refi with the same bank soon. It should appraise for 200k and my bank said they’d do another loan for around 145-150k after it’s rented out and showing income. So yes, the BRRRR method works and having cash on hand to make low offers helps getting some good deals.

Tony Gunter · Answer

BRRRR works, but nobody said it was easy.

Mike McCarthy · Answer

@Cody Scholberg most/all banks require a 6-month seasoning period for a conventional loan. That means you need to wait 6 months from the purchase date to close on a refinance mortgage. That will allow you to use the new after repair appraised value (ARV) to bade the 75/80% mortgage on.

You shouldn’t have any issues finding a bank that does a refinance on a rental property. As far as I know, every bank does it. What are you asking for?

Taylor Lorei · Answer

I haven't done it yet, so I can't speak of that experience just yet.

But in researching a market, I did call a local bank there about there cash out refinance terms. They were happy to help, answer any questions, and did confirm that they do it after a 6 month seasoning period. You can try that, maybe you just haven't talked to the right banks.

It's definitely a part of the BRRRR strategy that makes me a little hesitant. I would never go through with a deal without speaking directly to a lender about the refi. But people are doing it, so the lenders are out there somewhere!

Alex Jones · Answer

@Cody Scholberg The BRRRR book made a lot of sense and BRRRR investing is one of the best there is. I wishes I know this early in my investing career. What I did first is to research locally what the bank requirement are for refinancing property after it is rent. We have to do a lot of planning ahead before purchasing a distressed property. It is like a Black Belt in a sense we prepared and planned ahead before the battles. Continue to reach out to bankers, mortgage brokers and or lenders on how their firms will be able to refinance the property.

Alex

Brent Crosby · Answer

Changes all the time. I’d contact Sam Grady sgrady at limaone dot com and he can give you the latest. Tell him I sent you!

The BRRRR Book's Strategy - Only Good in Theory??

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