Help with the Refinance part of BRRRR is it worth it?

Question

Looking for some advice. Im in the Refinance part of BRRRR and heres the situation.

Currently have 200,000 mortgage @ 3.5% for 30 years. Monthly payment $1300. Rent i receive is 2200.

Im Cash out Refinancing 75% and have been offered a new mortgage of 275,000 @ 5.2% for 30 years and would be walking away with 47,000 Cash for my next investment. New Monthly payment would be $1825. And Rent i would receive would be 2200.

Is it worth refinancing? at a higher rate. Ive shopped around they are all around the same higher interest rate. Looking for some advice.

CJ M. · Answer

@Eric Malone

Thanks for sharing Eric. Honestly, and not trying to poke holes in your BRRRR (just trying to help), but this is where people get into trouble with REI. I would do a little more research on how to calculate cash flow. It's the $ left over after ALL operating expenses. Regardless of whether everything is new, you will have expenses (vacancies, capex, repairs, HOA increases, etc., etc.). For example, at $2,200 in monthly rent, a 1 month vacancy will cost you nearly 8 months worth of your $284...and that doesn't even account for any repairs you'd have to do to get the property rent-ready again. You really should consider accounting for these type of expenses before figuring your cash flow.

Hope this helps. Best of luck with your decision.

Matt Vezina · Answer

With that particular property if it were mine, would probably leave it alone as far as a refinance and just start stacking the monthly cash flow towards another purchase.  The current $800 a month over the mortgage and HOA is a nice spread, wouldn't want to stretch myself that thin on a monthly basis for the cash today.  A line of credit may be something to look at, still a payment increase but you could access some of that equity on a shorter term basis without increasing the first mortgage at that nice low rate.

Eric Malone · Answer

@Audra Luther I ended up just leaving it alone. That property does well so I didn’t want to rock the boat. But I ended up just saving enough to put a down payment on a 2 family.

Audra Luther · Answer

@Eric Malone

Wondering what you ended up doing? I am currently pondering the cashout on my SFH but the loan originating process will cost me $14k to get $32k (which would be used as a down payment on an Airbnb hopefully- markets crazy hard to find one in the area I’m looking!).

Eric Malone · Answer

@Lee Ripma that’s what I was thinking. With the 4 family it’s asking price is 279000 and rent would be 1000 per unit. So I would make up what I would lose on the Refi property.

Lee Ripma · Answer

@Eric Malone

I think others have brought up good points. Based on what you’re saying, and since you asked for advice, I would tend to take the cash out and go buy the 4-family. Now, you will likely have a bit of negative cash flow on the property you did the refi on, so setup a reserve fund. If you’re just starting out scaling up is probably more important that keeping cash flow on that initial investment. You’ll still have equity in it after cash out, so you could always sell if you want to. Try to buy a 4-family that has some upside so you can create more equity.

Kenneth Garrett · Answer

@Eric Malone

I suggest reading two books that will help you.  Rental Property Investing by Brandon Turner and the BRRRR book by David Greene.

You will need to consider vacancy rates, maintenance and capex.  When you say everything is new, I am assuming the appliances.  What about the roof, furnace, water heater etc.  At a cash flow under $300 here are things to consider.

Vacancy - loss of rent for 30-60 days plus repair cost - painting at a minimum.

Mortgage (60 day vacancy) 1824 x 2 3648.  That eats up any profit/cash flow for the year.  Painting 2500.

I like using private lenders and rehab the property to force the appreciation and refinance all of my private lenders money out.  This way I can do more deals and scale quicker and keep my cash flow.

Good Luck.

Eric Malone · Answer

@CJ M. Thank you very much, I am looking for as much help and advice I can get. This seems to be the hardest part is the refi. I just don’t know what to do.

Eric Malone · Answer

@CJ M. Take the new mortgage payment of $1824 and minus it from the 2200 i collect from rent. Everything is brand new so there isn’t really any repairs. The HOA fee is 100 a month.

Help with the Refinance part of BRRRR is it worth it?

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