BRRRR Method Refinancing- Pre-Qualification?

[Kelly Beasley]

Hey all!

So with the refinance part after the rehab, here's my question:

Do you go to the bank beforehand to somehow pre-qualify? My brain is concerned I might buy a property, do the work, then go to lenderss and get rejected for a refinance for 'X' reason. 

Are there reasons they could reject and do you go to talk to a lender beforehand to somehow pre-qualify? I would want to make sure I didn't get stuck not able to pull my investment back out of the property. 

[Evan Polaski]

@Kelly Beasley your two main risks are that YOU don't qualify and that the property doesn't appraise.  

If you have a high paying stable W2 job, good credit score, etc then you should have nothing to worry about. Even if you own in an LLC and go to a commercial lender, they will underwrite YOU and you will be signing a personal guaranty. So don't go quiting your job, as that will make it harder if not impossible to qualify. On the commercial lending side, you will also have debt service coverage ratios (a ratio of net operating income to your debt service) you will need to hit, that could potentially limit loan amount.

The other piece is the appraisal.  Here you just need to know your comps and be prepared to fight for the valuation you think is realistic.  This is the part that is harder to control and I felt I never got the price I wanted on appraisal.  Since there is no arm's length transaction between a willing buyer and seller, the appraisal will likely come back conservative.  Make sure you have comps ready to hand to appraiser with reasons why yours is better than the others and a list of renovations and even some before and after photos.

For me, when I was BRRRing, I did not talk to lenders ahead of time.  I found one when I was ready to apply for the loan.  But again, there is no sure thing, but from a qualifying standpoint, keep your financial house in order and you should be fine.