Executing the BRRR Stragegy

[Erick Garske]

I a executing the buy, rehab, rent and repeat strategy. 

That said, now that I had purchased a property with all cash, rehabbed the property I am ready to refinance and use the cash out proceeds to purchase another property. 

I had expected to get a rate of 4.65% to 4.75%, but these are the terms that I was offered from a lender:

Rate: Between 7.5% & 8,25% Fixed for 7 years, [a 7/1 ARM] Fully amortizing P & I payment on a 30 year schedule. The loan adjusts annually after year 7 thru the remaining term. This is a PITI payment so the lender will escrow for taxes and insurance and will be collecting the state required reserves in advance at closing

What type of rate should I expect for a cash out refinance?

Thanks.

[Mike Sattem]

@John Calcanis,

The delayed financing exception is a route to Fannie Mae/Freddie Mac financing. These basic guidelines are thus: If you purchase a property for all cash, you can finance the property within 6 months of original purchase using a Fannie/Freddie loan for up to 70% of the new appraised value, not to exceed the purchase price. because you are buying for cash, and most likely doing some form of remodel, I always plan on just receiving my purchase price as the financed amount. Additionally, you can finance your closing costs onto the loan above and beyond the 70% LTV/Purchase price amount. Below are some examples of the way I have done this.

1602 Monroe Ave, La Grande, OR 97850

Purchased for $58,650 in August of 2015, all cash

Had rehab costs of $6500 (paint, carpet, and some minor electrical)

Financed the home using the delayed financing exception in January and received a mortgage of $61,000 (Purchase Price plus closing costs)

I then rolled this cash into another property, and repeated the process again, closing that loan in March.

I eat my rehab costs out of pocket, but it's a method that has worked well for me, and I have purchased four homes in the last calendar year doing it. As a side note, I actually purchased all of these with "cash" from a line of credit, so in reality I was able to get all the benefits of a cash purchase, (quick closing, solid offers) without using my own money. The delayed financing exception will require that the lender source your funds, and if you use borrowed money like me, they will require it to be paid back with the financing money, but I always pay off the LOC's when not in use anyway.

Hope that is helpful,