How to do more than 2 deals per year with BRRRR strategy.

Question

Hi BP members, First of all this is a wonderful real estate community forum..! Thanks for the creators :)

For last couple of weeks I have been looking into BP blogs, webinars, podcasts and getting to know about different real estate strategies. I found BRRRR or BARRRR ( BRRRR with advertising at right time to get some tax benefits ) as the good fail proof strategy. I have seen people done a lot of flips using this strategy. As I was reading , I found that there will be seasoning time around 6 months for most of the banks to refinance a house. So, with BRRRR strategy I can do only 2 deals per year with my initial cash.

What are the different strategies to get past this barrier ?

What are the ways to get refinance within 3 - 6 months seasoning ?

One of the option that I read was delayed financing. But the limitation of this method is " The new loan amount can be no more than the actual documented amount of the borrower's initial investment in purchasing the property plus the financing of closing costs, prepaid fees, and points on the new mortgage loan ".  This would not give back the rehab cost paid by me.

I really appreciate any inputs on the questions that I have.

Stephanie P. · Answer

Account Closed

Portfolio lenders work all the time for refinancing.  Here's a scenario:

You purchase a property using hard money at 80% of the purchase price and get 100% of the rehab covered on a draw schedule.  You just paid 12% interest with 4 points and whatever other closing costs you had to pay.  Say you get the property for $110,000 and put $50,000 into it in renovations.  Not uncommon.

The property is renovated, rented and you need to get out of the 12% interest rate.  One problem is you're two months into the game and Fannie Mae or Freddie Mac won't touch you so that precludes a whole host of lenders.  You try delayed financing, but it makes no sense because you're still limited the purchase price plus closing costs and you want to take advantage of the new appraised value.  With those renovations and hopefully you did your due diligence, the new appraisal comes in, hypothetically, $245,000.  A 75% refinance at $245,000 gives a new loan amount of $183,750.  You have $160,000 plus closing costs into it, but this is a buy and hold, so you're really only into it for $11,000 (your down payment) plus carrying costs for 3 months (about $4800).  You've used other people's money for everything else.

You can wait, but you're paying 12% interest.

or...

You can refinance using a variety of other portfolio lenders that will be higher interest than Fannie or Freddie, but the qualification is much much easier.  No requirement for title seasoning is one advantage, but no income verification and a reduced burden on previous renovation/flipping/BRRRR experience is another.

Rates can range, depending on a variety of factors from 5.99 on a 30 year fixed to 8.99 on a 3 year fixed with a 30 year amortization.  There will be points involved, but either way, you get cash out based on the new appraised value so you can continue to build your empire.  At 8.99 (worst case scenario) your principal and interest payment will be $1477.  Add taxes and insurance to it and you're pushing $1750.  If it's a two unit (units are smart) you're getting $1250 per unit and grossing $750 per month.  Those aren't pie in the sky numbers here on the east coast BTW.

After a while of doing these and reporting your rental income on your schedule E, you may want to go Fannie Mae and get a lower rate or not; it's up to you.

Happy investing

Stephanie

Austin Fruechting · Answer

Banks that are portfolio lenders are often willing to refinance without the seasoning period on smaller properties.

Shiloh Lundahl · Answer

Account Closed described. This year we have purchased 11 buy and holds that we have been able to get financing for using the BRRRR Method. It was commercial financing at 4.69% 5-year adjustable rate mortgage on a 20 year amortization.

On the first 4 they gave us back 75% of what we purchased them for plus 75% of the rehab costs. But then as we stated to get more properties that we needed loans on they just stated to go off 75% of the ARV. This made it possible to start getting the majority our cash out of the properties. So 6 of the properties we purchased and rehabbed and rented out on lease options have none of our cash into them and 5 of our properties have about 150k of our cash into them among all 5 properties. We plan on getting that cash out by creating some 2nd position performing notes that perform at 11-12% and selling them to someone who just wants to be a passive investor and get quarterly checks in the mail. This way we will be able to get all of our cash out of the properties and still cash flow on average $200 on each property split between my partner and I each month.

This is how we have been able to scale up and do multiple properties a year.

Anthony Gayden · Answer

There are private money and hard money lenders who will refinance with no seasoning period. Keep in mind that this will be at higher interest rates. If you go this route you just have to factor in your costs.

Account Closed · Answer

@Shiloh Lundahl Thank you so much for sharing your experience. I started looking for portfolio lending. With all this information I am really excited to start my first project. Just looking for good deals in dallas to start with.

Account Closed · Answer

Wow, what an explanation.  Thank you so much for the info Stephanie and Austin.

Account Closed · Answer

@Matt K.

@Austin Fruechting

Thank you guys for your input. I will look into these options.

Account Closed · Answer

@Anthony Gayden . Thank you for the input. So, private money and hard lenders would not work practically for refinancing.

@Matt K. Thank you for the info. I will into the portfolio loans. I will learn on it. I would also talk to few loan officers. That is good point about DTI cap.

I am still wondering how people are making more that 2 deals per year using BRRRR.

Nghi Le · Answer

If you can stay conventional, I'd always recommend it since you're not going to find anything that beats those rates.  Rate & Term Refinance doesn't require any seasoning.  This kind of refinance is intended to pay off the existing loans.  Normally when you purchase something, you need a down payment, so you usually won't get all your money back from the rate and term refinance.

However, there are ways to get 100%+ financing on the purchase, and that's the key.  You can bring in private money to provide the down payment as a 2nd lien or collateralize another asset (usually a property) for the down payment.

Stephanie P. · Answer

@Austin Fruechting

5% on a 20 year amortization is available sure.

My post was long winded and I apologize.  The point may have been lost in the numbers, but the point is there is money out there and don't get stuck on bank money.

5% on a 20 year amortization is about the same payment as 7% on a 30 year (within $11.00).  If a higher interest rate over a longer term gets you the money to make the deal work and keeps the cash flow about the same, do it.

How to do more than 2 deals per year with BRRRR strategy.

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