Flaw with BRRRR method?

Question

Hi everyone, I needed your help. I’m trying to get started with the BRRRR method. The issues I’m facing is that although I own a couple of properties already, in order for me to use BRRRR I would have to sell one or do a cash out (I’m trying to apply for a HELOC). Anyways, I’m still taking my time and studying the market (HOUSTON). There are 2 issues I found with the BRRRR method from just asking different brokers. 1) if I quit my job, then I won’t be eligible to do the brrRr (Refinance), 2) if I keep my job (which is my plan), I still have to wait 6 months in order to get 75% LTV for the ARV, if I refinance in less than 6 months then apparently they’ll just refinance from the amount I bought the house for +repairs.

My father flips houses but has no income. Although he owns several houses he can’t refinance them at all due to no income. Let me know if you have any ideas that can help or ways around these 2 issues please. Thanks and God Bless!!

Justin Clemmer · Answer

@Nagy Wassef

Someone correct me if I'm wrong but I believe conventional lenders will start to consider rental income after two years. So after two years of cash flow you can quit your job and use the rental income to qualify for new loans -- provided that income is high enough to qualify of course.

Patrick Menefee · Answer

@Nagy Wassef you’re comparing apples to oranges. The rule of waiting 6 months to refinance are based on the bank, not on whether or not you have a job. Even if you had sufficient business history on your own without receiving W2 income, you’d still be required to wait unless you find a bank who doesn’t require that “seasoning” period at all.

What do you do for a day job? What are your goals? What’s your timeline?

You definitely need to learn, so ask all the questions you can. But if you’re at a point where you’re unfamiliar with general rules around lending, i certainly wouldn’t recommend quitting your job and losing your source of income to practice something you may or may not want to do.

Austin Works · Answer

This is true if you plan on placing the property on a conventional 30 year mortgage. If the numbers work at 15 or 20 years and  on commercial interest rates, there are small local banks that offer the option of buying property on a construction loan (where the bank funds purchase and repairs), based on a subject-to appraisal, requires only 30 days of "seasoning", and will allow you to pull your down payment cash back out when refinancing, assuming you will still be below the bank's max LTV. The good thing about doing it this way is that you know up front what the property will be worth, rather than hoping the appraisal comes back at what you assumed it would when purchasing the property. I can't speak for every small bank, but my bank does not re-appraise after repairs are complete, they simply inspect with an internal employee to see that your planned list of improvements was fulfilled.

Nagy Wassef · Answer

I agree, i'm not planning on quitting my job and i understand i need money etc... all i'm saying is that all the brokers i called said that i need to have an income in order to refinance. My goal is to eventually work full time in real estate if possible, but these are the issues i see ahead of me. I'm asking how others are getting around it, not saying there's no ways around it but is the only solution to keep doing the BRRRR method until your W-2 is sufficient from the real estate business to where you don't need a job?

i'm also asking for my dad who has 4 properties and can't buy more because he's not able to refinance because he doesn't work and is retired. Any advice would be appreciated, thanks in advance and God Bless

Jack B. · Answer

This isn't a flaw. you misunderstand the method. You need W2 income for most real estate investments until you get really big/rich. Nobody said the BRRRR method involved immediately not working....You seem to have conjured that up in your own mind and are bashing a method you don't even understand...Your ignorance is the problem. Not BRRRR.

Flaw with BRRRR method?

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