BRRRR - Buy, Rehab, Rent, Refinance, Repeat
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Updated over 1 year ago on . Most recent reply
BRRRR Strategy with STR
Hi Everyone,
I am somewhat newer to Bigger Pockets, so forgive me if this post has already been made. I was interested to get some feedback on BRRRR with the intentions of using the property as a STR. Also, when planning to finance these deals with either HML or OPM, any good pointers? Do you prefer HML or OPM? I am currently searching for deals in Western Florida around Tampa/Sarasota region.
TIA!
Most Popular Reply
I would start with the end in mind if you are wanting to BRRRR with STR properties. Find the company that you will be looking to do the cash out refinance with first. Find out their requirements, limitations, and leverage options. Then work your way into how you would like to initially finance the property. This will help paint a picture of what kind of deal you need and estimate project timelines a little better.
You can BRRR with a STR. Sometimes the refinance can be a little tricky as long term financing on STR's can be a little harder to get or at least you have less of a choice when it comes to what lender you can use. Hard Money on the initial purchase (rehab) is not a bad idea as the borrower can have peace of mind knowing HML's typically WILL NOT LEND TO YOU if you have a bad deal on your hands. I would expect to have 15% - 20% down payment + reserves going into your first purchase. Take your time and find the right deal if possible. @Michael Mignogno
- Matthew Crivelli
- mcrivelli@freecapfunding.com
- 413-348-8346
Thanks Matt! Great advice. I may be interested in using Freedom Capital Funding as well. Are your services avaialble in FL?
@Michael Mignogno The BRRRR strategy can work with short term rentals. Hard money is great if you plan to renovate and refinance in a 3-4 month timeframe. There are loans specifically designed for long term financing of STR properties. I would suggest lining up your renovation and refinancing shortly after the renovations are completed.
I would start with the end in mind if you are wanting to BRRRR with STR properties. Find the company that you will be looking to do the cash out refinance with first. Find out their requirements, limitations, and leverage options. Then work your way into how you would like to initially finance the property. This will help paint a picture of what kind of deal you need and estimate project timelines a little better.
@Michael Mignogno Call local banks, I did this last week and found that 50%+ do commercial loans (which is what I was looking for) on STR.
@Conner Olsen Thanks for the tip. I will def starting reaching out to more local bank. Are these commercial loans requiring 30% down? What kind of rates/terms are you seeing? I would be very interested if a bank offered a type of commercial home+renovation loan with a fixed rate.
Yes Sean, that is mostly the strategy I am taking so I can assure a path to finance prior to making offers. I am using a local bank he who i am forming a good relationship with but their products and loans are more geared towards traditional residential loans
As a HML we have a ton of clients who look to BRRRR with STRs. We add value to thier strategy by giving them the confidence to take down the property and the peace of mind knowing their rehab costs will be reimbursed, allowing them to focus on the bigger picture of making the property ready for the STR market.
Hi Michael! Soo this is the exact strategy that I started out with lol. I did the BRRR investing in Florida with an exit strategy of STR. And I used other people's money. How soon are you looking to get started? this is my bread and butter haha
Thanks Issac. Shoot me a message and we can exchange details. I have a few properties I am weeding though now, but would love to get more info about your lending criteria.
@Michael Mignogno The loan I liked best was 5/1 ARM 20 year amortization with no balloon. The commercial loan officers can tell you what they offer in like 5 minutes, it takes no time.
What was the LTV? I have always had fixed rates, what are the benefits to the borrower? I have heard nightmare stories about balloon payments so I will admit since they are foreign to me I am avoiding them. I'm also curious what are the benefits of balloon payments to borrowers?
Thanks for the help!
Michael, for the "refinance" portion of the BRRRR, specifically for an STR, you should investigate looking into either conventional financing if you qualify for it, or doing a DSCR loan with a lender that can use Air DNA projections to qualify the rental income of the asset, and thus, the loan, assuming all the other metrics check out. Additionally, I'd make sure to have your financing all squared away as it relates to seasoning. For conventional financing, you must wait 12 months after acquiring the property before being able to lever off the appraised value on a cash-out refinance. As for DSCR, different lenders will have different seasoning requirements for levering off the appraised value on a cash-out refinance. I know some will allow you lever off the appraised value with as little as three months seasoning!