Have loan/money questions

[Keith Blakeney]

On brrr strategy can you get your rehab money included in your loan? Realistically, if so, how likely are lenders to do this and are u killing your refinance potential before you even start? 

[Edwin Epperson]

@Keith Blakeney, while I am by no means an "industry expert", I do lend out my personal capital as well as broker capital from the secondary markets and other "institutional" lenders. What you have is one of the core heart-aches of the BRRRR strategy. You have two different financing needs. The first is the Buy and Rehab or the "B" and first "R" in BRRRR. The second financing need is the third "R" in BRRRR which is Refinance. There is no capital available right now (from businesses anyway) that answers both these financing need with one loan product. You will have to borrow Purchase and Renovation capital and then get a new loan for the 30yr fixed rate loan also called a "DSCR Loan". Just know that the DSCR Loan is a "wallstreet" product, and wallstreet is very adverse to risks, especially in the mortgage space (laughable considering what happened in 08', yet I digress). As the economy capitulates and inflation continues to erode the power of the dollar, Wallstreet will become more bearish on "high risk" loans. They consider loans to investors as "high risk", though in my opinion, they are safer than owner-occupied loans, which are the holy grail of so many funds, and the undergirding support for the bond market.

My humble recommendation is to be UBER conservative on your projections for your ARV #'s and realize that the ARV's (future value) in today's market will not be the same in the realized future market. My prediction is that values over the next 2 - 3 quarters will generally see a 10 - 15% correction on avg. Though in some parts of the country that correction could very well mimic 08" price corrections. Also keep this in the back of your mind, that the lenders today, offering DSCR products have already changed their underwriting, and guidelines for these products starting Feb of 22', and they seem to constantly be changing (for the worse). High cash reserve requirements, lower LTV allowances, higher min. DSCR's, higher min. credit score requirements, and even lender adjusted valautions. This simply means that the lender is taking mitigation measures by TODAY adjusting for the presumed price correction expected on the horizon. So if they (Wallstreet Quants) believe that the future ARV in 6 months is going to be 10% less they may factor that in for today's prices. Example You believe that the property ARV will be $300K, and the Appraisal you receive states it will be $300K, yet the lender will apply a "discount" to the value of 5 - 10% today, and then base their max LTV's on the adjusted valuation. Now their ARV that THEY will use is $270K and their LTVs are going to be based on that $270K. It's already happening. As @Gene Hacker mentioned you MUST become ultra conservative in your offer prices.  If you cannot buy a property for 50% OR LESS of ARV, and if your purchase price is not less than 70% of As-Is value then its not a deal to have on your balance sheet int he coming quarters.

All of this is my humble opinion of course, and I'm glad to be proved wrong.  My gut says though I'm not being conservative enough.  Only time will tell.