BRRR: Lenders won't use ARV for cash-out refi for a year

[Andrew Gordon]

Basically, I am talking to lenders to get lined up to do a BRRR in the next couple months and everyone I have spoken to has told me that you can't use the ARV to cash out refi unless you have owned the property for at least a year.

If it's been under a year, you can only refi based on the money you have put into the property: the purchase price + the rehab cost. So you can get up to 80% of your capital back, but it's not that great because you are still leaving 20% of the money you have spent in the property. Basically, it's a 20% down payment. Not really a BRRRR as I have heard it described!

So, I was a little surprised by this because it wasn't mentioned in any of the BRRRR books / videos / learning materials I have used. Waiting a year to get your capital back isn't great.

I am currently talking to a portfolio lender at first bank who can refi with the property in the LLC. Fanny / Freddie lenders won't refi LLC owned properties (as far as I know), but I am curious if anyone can steer me in the right direction to a lender that can refi based on the ARV within a year. All lenders I have spoken to say they can't do it.

Thanks in advance everyone!

- Andrew 

[Jonathan Taylor]

@Andrew Gordon I don't think you have been talking to the right people. Fix and flip loans use ARV to lend on in combination with the other factors of a flip loan (FICO, purchase price, Reno and ARV) but 30 yr fixed DSCR loans are based on new appraised value to refi as soon as 3 months.

The issue I am seeing in recent months is the rents don't debt cover at 75% LTV due to the increase in rates. So BRRRR borrowers have to either buy the rate down or refinance with a lower LTV. All the numbers are based on the appraised value after all repairs are done.

Sounds like you are talking to conventional banks. Try DSCR lenders as their underwriting criteria is less strict and are more property focused not borrower focused in their Underwriting. Happy to answer further questions, DM if you'd like.