BRRRR strategy failing!

[Angela Jossy]

I've been working on the BRRRR strategy. I bought my first property, a duplex, and started househacking. I rented the larger 2 bd unit for $1200 to a family member. I remodeled part of the unfinished basement and turned the studio apartment into a one-bedroom. I decorated it and after owning it for 9 months, I put it on Airbnb to test the waters. I've been averaging around $1100 a month from that unit. Its booked solid until middle of January. I'm getting about $900 in rental income after the mortgage is paid. In December I will have owned it a year. I bought it on FHA. Three experts have told me that the property has increased in value somewhere between $65k and 81k. I thought I would do a cash out refinance to get out of FHA and use the cash to buy my next property. My mortgage broker is telling me that I won't get much cash out, my payments will be much higher and I can't do it anyway because I don't have 6 months of reserved mortgage payments. She said I could refinance as FHA and get cash but it still wouldn't be enough to put 20% down on my next property and I would not be able to Airbnb because I would have to live there as my primary residence. Plus, my payments would be higher so it wouldn't cash flow and if the market tanks, I could be upside down in my mortgage.

Where did I go wrong?  What angle am I not seeing? 

[Curtis Bidwell]

Go Wrong!? Sounds like your doing great!  Not sure how much you put down or invested in remodeling but clearing $900/mo in under a year is nothing to feel bad about!

It is true that you won’t get full value on a cash out refi.  I got about 80% value on a recent cash out refi.  Mine was on a commercial property. They gave me 75% of THEIR appraised value - which will almost always be less than if you got an appraisal for a sale.  

So, let’s say you paid $250k with 20% down and invested another $50k and now have a marketable value of $375k.  Your lender will likely give you a value of about $300k and give you 80-90% loan (if you owner occupy).  So you can get about $70k back toward your next property plus $900/mo (gives you another $10k a year) to put toward your next project. In this scenario your making over 10% on your investment plus other tax benefits and mortgage pay down by your tenants.  Keep it up!