BRRRR - Buy, Rehab, Rent, Refinance, Repeat
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Updated almost 4 years ago, 02/15/2021
First BRRR Advice Needed
I found a duplex listed at $95k in South Dakota that needs quite a bit of work. New roof, siding, balcony, both kitchens and both bathrooms. It's currently 4/1 top, 1/1 bottom. The bottom unit can be converted to a 2 bedroom. When the rehab is complete I will be able to get $1650/mo gross and $180k ARV.
Given the amount of work needed, I am going to offer $65k, 20% down, $1k earnest money. Property taxes are $1880, and I'm waiting on the insurance quote. The acquistion mortgage rate quoted is 5%/30 year, and doesn't include rehab costs. I can put in $50k max out of pocket for rehab.
Once the offer is submitted and hopefully accepted, the inspection and appraisal will be completed. At the same time I'll get bids for the roof, exterior, and interior. The units are both occupied for the next 6 months so I won't be able to touch the interior until the leases are up. This will prevent me for refinancing later than I'd like.
I'm worried that I'm going to get myself stuck and not able to cash out and work on the next deal. If I just do the roof and maybe exterior, I won't have the equity I'm hoping for but will still have tenants.
Thoughts, experience to share?
Just my personal understanding, not official knowledge...however...
"the units are both occupied for the next 6 months so I won't be able to touch the interior until the leases are up. This will prevent me for refinancing later than I'd like."
- unless you have delayed financing, you need 6-12 months for seasoning before you can refinance, so just get that rehab done lickety-split!
@Suzette T. The bank lender for the acquisition is open to a cash out refi once the work is complete. Time wise, the property would close with the 5% mortgage, and occupied. I could do the roof and exterior immediately. After 6 months the leases would be up and interior rehab could begin. That would take 3-6 months to complete, correct? Refinance wouldn't be possible for 12 months.
The bank loan underwriting and closing is $2000. I was considering an hard money loan, but the fees didn't seem to make sense
Since this is my first deal, my LLC doesn't have a credit history. If established, the bank would be willing to do an acquisition loan and a secondary construction loan, the cash out refi. I might be able to do the construction loan application in 6 months once the relationship is established.
Originally posted by @Nicole Skorka:
@Suzette T. The bank lender for the acquisition is open to a cash out refi once the work is complete. Time wise, the property would close with the 5% mortgage, and occupied. I could do the roof and exterior immediately. After 6 months the leases would be up and interior rehab could begin. That would take 3-6 months to complete, correct? Refinance wouldn't be possible for 12 months.
The bank loan underwriting and closing is $2000. I was considering an hard money loan, but the fees didn't seem to make sense
Since this is my first deal, my LLC doesn't have a credit history. If established, the bank would be willing to do an acquisition loan and a secondary construction loan, the cash out refi. I might be able to do the construction loan application in 6 months once the relationship is established.
As for rehab time, I really can't say. Full gut job we did took 4 months. Just a quicker one was about two months. We are still learning! We tend to do what we can ourselves, so we many not be the fastest.
Check with your lender. Here is how I understand it: Purchase property in January. If your seasoning is 12 months, then you have until the following January to do rehab, since cash-out refi seasoning period is 12 months. Since your tenants would be out, your reno would be July- Dec.
Best of Luck!
@Suzette T. Thanks! It's nice knowing that the path I'm on is reasonable.
It's hard to understand timeline when there are stories of simultaneous BRRR, and quick buy and refi with hard money, opm, etc...
Just a thought Nicole about South Dakota is that exterior work slows way down in winter. If you are talking painting and roofing, that may not get done until April/May. I quick did a roof, siding, and concrete work on a flip I am doing in November, and have just focused on the interior since then.
be extremely careful with statements claiming certainties, "When the rehab is complete I will be able to get $1650/mo gross and $180k ARV."
Since this is your first you might want to have a few realtors give you CMAs. if there's a large range in value pay for a private appraisal in hypothetical condition (repaired). I see investors get killed every single day because their ARV was totally off. And even if your ARV is correct, there's always the risk and appraiser sees things differently.
This business has much that is outside of your control...too much frankly...
