Struggling with BRRRR refinance...

[Jake Thornton]

So, last year I bought my first BRRRR property in Memphis, TN. I've learned a TON of lessons, and the lessons keep on coming! Here's the info on the deal.

I bought a 2/1 for $29000 from a wholesaler. Having done research, I felt that the property would be worth about $65k after the rehab was done. So for the BRRR to work most efficiently, I needed the rehab to come in at around $18000.

Ultimately, these costs crept up and I ultimately ended up paying about $21,000, slightly over what I wanted but I was okay leaving a bit of money in the deal.

We got it rented, and got over what I was hoping for. 

However, once the tenant was in, the water heater broke down, and needed replacing, and then it was revealed that the furnaces were no longer any good, and it was either buy new furnaces for $6000 or get a whole new HVAC system for closer to $7k. Despite having bought wall units, I went with the latter option, figuring I could use the wall units on another house. So anyway, all including various taxes and closing fees etc, I am $60,500 in. At this point it wads clear that the full BRRRR wasn't really going to work at the $65k estimate, but I was still happy to leave some money in and have the cash flow.

I began down the road with a lender, and had my appraisal done. It came in at $57,000. Ugh. So I'd put more money in than the property was worth right now. 

So I had a few options. 

1. Sell and take a loss. 

2. Refianance for less than I put in, leaving a bunch of money in the deal ($57,000 - 25% = $42,750). So I'd be leaving about $17,750 in the deal, and making a modest COC return of about 15%.

3. Keep it as is, leaving all the money in and making about a 13% COC return.

I decided to take as much out of it as I could, and have been trying to refinance. However, it is hard to find a lender who will write a loan for less than $50,000. I have found two who are willing to do it, however, my debt to income ratio hasn't helped, and I got another rejection from one of these lenders today. I own two very successful airbnbs which provide me and my family with about $4000 a month cash flow, but a lot of lenders won't consider these properties as they don't have year long leases...

I'm starting to pull my hair out with this. 

Soooo.... what would you do? 

[Whitney Hutten]

@Jake Thornton If you could refi, that would help (the loan amount will be the trick). You could also do another deal and portfolio loan the two together at the end in the refi (that may help you get around the loan limits). 

If you can't get that done, you will need to make a call on holding or selling.  If this property rents well and is in a good area, I'd think about keeping it. 

Regardless, it sounds like you have learned a TON and have some work to do on that DTI. Even with these bumps, you got started, and are on the path my friend!