BRRRR, refinancing hard money to portfolio bank

[Pete Storseth]

Hello BP

I'm planning my first deal based on the BRRRR strategy and I'm stuck. The refinance is key to get cash out in order to repay lenders and be able to repeat.

My question is, when you refinance aren't there a number of obstacles?

1. You have to qualify for the conventional loan to refinance into it.

2. Using local banks that keep loans in house, aka portfolios, still require 80%LTV which means you need to raise the value significantly in order to cash out refi.

3. Its confusing to research, because many investors are refinancing into "portfolio loans " that include multiple properties instead of just one refinanced property at a portfolio lender.

4. Doesn't this put too many properties on your credit to eventually lead to maxing out what banks will do for you? Forcing you to stay with hard money or private money?

[Whitney Hutten]

@Pete Storseth BRRRR when done correctly uses the forced equity in the property as the new downpayment on the refinanced loan. Let's keep the math simple:

1. You buy a home below value.  Let's say $50K.  You KNOW when this rehabbed it will have a value of $100K and rent for $1K or higher.

2. You put in a $25K in a rehab

3. Your new value is $100K

4. You tenant the property for $1K a month

5. You go to the bank and ask for a refinance. They will give you 75% LTC (a new loan for for $75K) AND 75% credit of the rent for expenses (PITI + HOA) which is $750 ($1K *75%).

6. Here's the cool part... your expenses (PITI + HOA) are only about $650. NOW you have $100/mth added to your income AND $350/mth cashflow in your pocket, with very little (or none) of your own money in it.

7. You repeat this process, adding income and cashflow to look stronger on every deal.  

Now this is a perfect BRRRR and they are out there. Keep in mind I simplified the math too. Totally doable with the right deal and team!