Anatomy of a refi in BRRRR

[Lee Korak]

So I'm unclear on how a refi would work exactly on a property with a loan on it. Here is a somewhat real-life scenario to see if I am thinking about this right:

Let's say I have a rental property that I purchase for $65k. I put $13k down, plus $3k in earnest/due diligence, bringing the money down to $16k total. So the loan is for $54k.

I then put $25k of rehab into the house and it then appraises for $100k. If I do a cash out refi after a year (not factoring in right now the amount I've paid down with a year of mortgage payments), how much actual cash can I pull out? 

So if cash-out refi is 70% LTV, and the value is $100k, with an original loan of $54k am I looking at being able to pull $70k out (70% of $100k)? Or is it $70k minus the $54k of the loan, equaling $16k? Or is it some combination of this?

[Omar Ramirez]

@Lee Korak Hey there! If you're considering refinancing with DSCR, it's important to keep two key things in mind: loan payoff and ARV. Here's an example to help explain things better. Let's say your property's ARV is $100,000 and the loan payoff is $54,000. If your LTV is around 70%, your new loan amount will be $70,000. Out of this amount, $54,000 will go towards the loan payoff, leaving you with $16,000. This remaining amount will cover the loan costs and third-party fees like title, escrow, and insurance. So, you could potentially get a cash-out of about $9-11k.

While John is correct about the time period of 3-6 months for 70% LTV and 6+ months for 75% LTV, it is worth noting that this can vary depending on the lender. There are some lending programs available that can offer up to 80% LTV on cash out with no seasoning requirement if the property has been rehabbed. Hope this helps!

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