BRRR quandary

[Aisha E.]

I recently bought a house from two brothers who had inherited the property as part of their deceased mother's estate. I paid them what they were asking for it; almost the cost of the land only. The 90 house needed a full gut rehab since it had been vacant for almost 12 years. I converted and expanded it from a 2/1 to a 3/2, with an entrance foyer, new master bathroom, master walk-in closet, a laundry room, thereby adding 255sq.ft to the original house. Location: Rapidly changing area with new commercial development less than 1/2 a mile away, and older houses being rehabbed. A sought after charter school. Huge swathe of land in 100's of acres 1/4 block away ready for a developer to swoop in and start building. Very stable neighborhood in transition. 3 exits away from downtown. The numbers: BP: $15,600 Rehab cost:$49,000 ARV: $110,000 as of right now Market rent: $1050 The house sits on a 10,000 sq.ft lot that I intend to get te-platted into either 2 lots, or get permission add a mother-in-law's cottage/structure in the back to be rented out separately. Following the BRRR principles, I started inquiring about refinancing the house. I was informed the lender will base his loan on the buying price and not the appraised value of the house as it stands. My point: it is my business savvy to finagle a good deal, create value out of something. This seems like getting penalized for being smart. Please help me figure out a way someone else has come across for a situation similar to this, and how they were able to get their cash out. Why is the improved asset not being regarded as the product against which to do a cash-out refinance. I intend to keep the house for the long term. I intend to buy more houses and lots in the area. Thank you.

[Sam Valme]

Hey Aisha,

I did quite a bit of research in my area (Northern VA) and found that it depends on the size of the bank and their internal policies. Some smaller places will do a 6 month refi on ARV. Larger banks I spoke to required 12 months before considering ARV.

So as stated above, you'll have to shop lenders. But one thing I did notice. Everyone I talked to said "this is the national/state/FMFM standard" I found this incorrect in most cases and they were just saying that to encourage me to stop inquiring from others.

FNFM do of course have standards for their loans. But at the end of the day, a portfolio loan from a smaller bank can be distributed at their discretion. It starts to go into that grey "who you know/what have you done for me lately" area after that.

Hope this helps! Don't give up!