High Debt to income and Refinancing for a BRRRR

[Erik Pacpaco]

I live in Hawaii and by virtue of owning real estate here my debt to income ratio (DTI) is pretty high. My question is would I be able to BRRRR using a HELOC to purchase out of state real estate? Would the bank be concerned that I have a high debt to income ratio when I'm trying to refinance a property? Would it be a better strategy to BRRRR using the HELOC completely under my LLC?

[Account Closed]

@Erik Pacpaco the bank would most certainly be concerned with your high DTI when refinancing a property. If the property cash flows adequately enough, however, it shouldn't have a negative impact on your DTI ratio.

Going under your LLC wouldn't make this any different, since you're the managing member. Unless, of course, your LLC is established enough that it can be considered its own operating entity, which is uncommon in this situation.

Also, a conventional lender won't usually let you buy under an LLC. You would have to buy under your name, then quit claim to an LLC, which means you'd still have to qualify individually. The other approach is commercial financing, but they're going to look at your personal "cash flow" and the property's cash flow as well, which is a degree more conservative than the conventional lender you're already having a bit of an uphill battle with.

Your case is one example of why BRRR deals don't really work as well as everyone makes them out to. Usually these BRRR properties don't cash flow enough post-refi to be worth keeping. If you find a good, discounted deal that you can really generate some equity in, I would sell it and use the flip income to fuel the purchase of already stable, cash flowing properties. The extra revenue from selling off underperforming equity positions really helped me accelerate my investing career.