How to BRRRR SFH with no season time?

Question

Hello BP,

I have been reading a lot about the BRRRR strategy and have found a partner to put up the capital. My questions are the following:

1.  If we pay all cash for property/rehab and have a renter in place with a contract:

A) Can we refi right away?

B) What lenders will do this? It is my understanding that traditional requires 6-12 months

C) What financials will they need if we are using it as an investment property with renter in place and leased signed?

D) Can we avoid having to personally sign for the loan if we are purchasing the property through an LLC?

E) What is the max LTV I can expect to receive?

F) I hear mixed responses on what value the banks will loan against. Is it purchase price, purchase price + rehab, or is it newly appraised value?

1 property in particular I have come across is off market being put up for $48k which needs 18-20k in reno but will ARV for $90k. Leaving 25% in the property we could refi for 75% and pull out $67.5k in an ideal world. Is this wishful thinking or is it actually possible?

Thank you all in advance for your comments and help

Eric

Brad Shepherd · Answer

A - Yes, generally as soon as the rehab is done and you have a signed lease. start my refi process the day I close on the purchase.

B - Local portfolio lenders are your best shot. Get on the phone and start calling local banks. Ask for their commercial lender. I

C - Just like any other loan. W2s, ~3 years of business and personal tax returns, balance sheet and cash flow statement.

D - Not for small residential properties. As least that's been my experience.

E - Max I've found is 80%. 75-80% is typical.

F - For a cash out refi with a local portfolio lender, it will be the new appraised value.

Your example scenario makes me think that you'll be leaving some cash behind locked up in the property, which is not bad in itself if you're ok with that. You have to add in all of your closing expenses twice (purchase and refi); if the rehab budget is between $18-20k, plan on $25-30k. Generally for BRRRR you want purchase + rehab costs to be less than 70% of ARV, unless, again, you're ok leaving some cash locked in the property.

Alexander Felice · Answer

A. yes, if you use the delayed finance exception you can remove the seasoning period

b. its' a fannie mae product, any lender COULD do this, but many don't know how

c. standard residential mortage stips (2yrs tax returns 2yrs w2 tax bills, reserves, etc)

d. if you buy it through an LLC you can't use this program, and no you can't get a non-recourse loan for a residential property

e. fannie mae investment is 75% LTV for single family homes

you're going to run into problems trying to do this with an LLC, AND the delayed finance exception requires you to use your personal funds. Borrowed funds are out (unless heavily seasoned, and then it's still not technically allowed) so you may not be able to do delayed finance anyway

if you do the LLC, commercial loans don't worry much about seasoning but the rate and terms are going to be worse, and finding a commercial broker to do such a tiny deal is tricky

The deal you described is one I do ALL.THE.TIME. I can do the entire process from purchase to cash out in <10 weeks. It's not wishful thinking, but the devil is in the details. Make sure you line the lender up BEFORE YOU PURCHASE THE HOUSE. the amount of people who buy a house then get stuck at refi because they didn't position it correctly is HIGH. Get the lending side concrete before you write any checks.

Once you solve those 2 obstacles you'll be smooth sailing ;)

Alexander Felice · Answer

I didn't see F!

with delayed finance you can refi the cost of the purchase AND REHAB but most people say you can only get what you put in because they don't know the rule.

the rule for DF is 75% LTV or 100% of HUD whichever is lower. so when you close on the HUD make sure you put rehab and insurance costs on there. you'll have to pay for it all up front and disburse through escrow but you can get it all back.

If you use a portfolio lender like @Brad Shepherd said then they will use a new appraisal and ignore everything I said. portfolio lender is a really good approach, but not all banks are equal and this is approach is not as easy to find.

James Lee · Answer

Hey @Gabriel Green-Lemons, thank you for this as it is very reassuring to hear. I agree @Alexander Felice is the man and very knowledgeable. If you haven't yet, check out his website brokeisachoice.com. There is some really sound insight and detailed examples of deals.

Thank you,

Eric

Gabriel Green-Lemons · Answer

Hey  @James Lee I concur with everything @Alexander Felice said (super knowledgeable guy by the way).

I just finished a BRRRR that took 111 days in Indianapolis. The bank I used refinanced against the ARV at 75 LTV (the lender is BMO Harris bank, and I believe they are regional). The product I used is called a "Refi Xpress" and the bank was willing to refinance against the ARV as soon as the renovations were complete (rehab took about 3 weeks). The one downside was they only allowed up to a 20 year amortization.

So yes, the scenario you are describing is absolutely possible. Don't be scared to call a bunch of local lenders to find the loan product you like the best. I called about 20 different institutions to find a few that would do a cash out refinance against the ARV without me being on title for 6 months. I narrowed it down to 5 that would and then went with the one that covered all of the closing costs.

Good luck and great question to pose to the BP community!

James Lee · Answer

Thank you @Alexander Felice and @Brad Shepherd for the quick responses. Sounds like portfolio lenders are the way to go. What are their rates typically, 6-6.5%?

I have also heard them say terms for 3-7 years and then an ARM with a max amortization of 20-25 years.

I have a small understanding of this but would one of you be able to further explain and maybe provide an example?

Much appreciated!

How to BRRRR SFH with no season time?

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