Stabilizing My Rental Portfolio in Memphis

[Arron Paulino]

Hello,

I am now 3 years into real estate investing from starting during the pandemic and have been able to obtain 7 SFRs into my rental portfolio all using the BRRRR strategy and now closing in on my 8th property maybe even my 9th fingers crossed. I am looking to make sure that everything is stabilized in terms of making sure that I cashflow positive each month. My goal is to match my monthly W2 income by the end of the year and eventually surpass it by doubling, tripling, or more as my rental portfolio continues to grow. Is it wise to pull out any equity in these properties or leave them as is? Also, do I need to transfer these into an LLC in Memphis to free up my ability to continue to use conventional financing? Right now, I am slowing down in terms of scaling since I've been relying on my own funds rather than using OPM to grow quicker. I currently work in the golf industry so I've connected with high-worth individuals, but don't really know how to word what I do in real estate to convert them into private lenders.

I also heard that the seasoning period for Freddie and Fannie loans has changed from 6 months to 12 months. Could someone please explain what this means to the BRRRR strategy? Is this a big deal in cash-out refinancing? One of my properties is close to the former 6-month seasoning period so I am curious and want to be prepared for the next steps.

Eventually, I'd like to delve into multifamily to scale. As much as I'd like to keep my long-term SFRs, I understand I may need to trade them in for bigger properties down the road. Looking forward to hearing from the community!

[Stephen Akindona]

@Arron Paulino, I am always in favor or using equity to grow the portfolio. It is really just a matter of running the numbers. If you can refinance now and still cash flow to allow you gain more cash flowing assets then to me it makes sense because you are always gaining equity by principle pay down and appreciation over time. In other words buying that property today is better than waiting 5 years from now when interest rates might be more favorable. Define your minimum acceptable return and then make moves based on whether or not a refinance will still hit your minimum acceptable return. 

I am actually in the process of refinancing a bunch of free and clear stuff to get capital ready for the coming market shift. Also cash out refinances have always required seasoning. People often get this confused the brrrrr strategy can utilize both a cash out refi or a rate and term refi also known as the delayed financing exception. You can immediately refinance any property using the delayed financing exception if you do not pull any cash out. 

For example if you buy a property with a 150k ARV for a purchase price of 75k and then do a 35k rehab (let's assume these numbers have all your closing costs and private money fees in them) then your all in costs is 110k. You can immediately refinance this but your loan amount would be capped at either 75% of appraisal value or your actual cost (assuming you placed the construction amounts on the settlement statement) which ever number is lower. In this example 75% of the ARV is $112,500 but your actual cost is 110k so your loan amount would be 110k and you can't pull any cash out. Keep in mind that the lenders can actually roll your closing cost of the refinance into the new loan as long as it doesn't go over the 75% LTV number.

I hope that makes sense, but if you want to chat about it some more would love to connect! Happy hunting!