What is the best strategy for a BRRR?

[Vishal Amin]

Hello,

I am looking to buy a value add property. What is the best loan practice for renovating? 

1st loan : DSCR loan to purchase the property.

2nd loan: Renovation loan, should I get a loan from a credit card? or go a different route?

After rehab is done, once it starts renting. How long do I wait to cash out refinance?

Thank you

[Stephanie P.]

Quote from @Anthony Salazar:

Quote from @Stephanie P.:

It should be the other way around. Purchase with hard money so you get the acquisition at the highest ltv possible and all renovations covered with draws and then refinance to the DSCR loan with longest terms. DSCR loans typically have a prepayment penalty so doing it first wouldn't work. There are DSCR loans that you can use after just 6 months of ownership for the cash out using the new appraised value.

Hi Stephanie. Why do a refi to a DSCR loan as opposed to conventional? 

Specific to this post, the OP asked whether they should do a DSCR loan and then a rehab loan and it's really the other way around to not get hit with a pretty massive prepay.

In general, with Fannie and Freddie's increase in seasoning requirements, DSCR loans are looking better if you can qualify for one with 6 months seasoning to get away from hard money.

I will say though, your question is a really good one. I always tend to think long term and conventional is the better play long term because of the lower rates and cheaper closing costs. It's really just a question of do you want to pay on a hard money loan for 12 months or pay a little more in rate and get the DSCR loan. It's all math with a variable of how long do you plan on keeping the property and how much are you losing in cash flow monthly.