BRRRR - Refinance Timeline for re-appraisal

BRRRR - Buy, Rehab, Rent, Refinance, Repeat
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BRRRR - Refinance Timeline for re-appraisal

David Brown
Member since 2021 · 4 posts · 1 vote

Question on timeline for a BRRRR. Given the following situation: $100K purchase price, $50K Rehab, $200K ARV, and let's say hard money lender at 90% purchase + 100% of Rehab.

I was talking with a local bank and received the following guidelines:

* For commercial (LLC ownership), they won't re-appraise until I've owned the property for 1 year. Until then the baseline for LTV calculations is the purchase price ($100K), so no ability to refinance out cash

* For residential (my name / fannie mae, freddie mac lending), before 6 months they can re-appraise, but the loan can't be a "cash-out", the max loan amount is the financing basis - so if the title work said the 1st lien was $90K, that is max loan, if $140K then that is the max amount.  

* For residential after 6 months then they could do a cash-out refinance up to 75% based on fannie mae / freddie mac guidelines

Are these normal restrictions?  My intent was to execute the rehab within 3 months and get out of the private/hard money lending quickly, but that doesn't seem possible given these limitations.

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  • Matthew CrivelliBusiness Member
    Lender · MA · Member since 2021 · 1k+ posts · 1k+ votes
    5y

    The rules of banks. You can use hard money, usually 90 days after purchase, get a new appraisal, and refi into a 30 year fixed. It will be more expensive but in return you get less restrictions and less qualifiers. You also get out of the monthly interest only payments much quicker. 

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  • Andrew PostellPro Member
    Lender · Fort Worth, TX · Member since 2016 · 8k+ posts · 6k+ votes
    5y

    @David Brown while some of those rules are close to what we need some are not. And frankly, I would seek a different HML too. So generally we want to use a HML that lends 75% of the ARV on a property. none of this 90% purchase +80% cost stuff. Now, you might be limited on these things if it's your first deal or if the property is located in a rural/smaller town. So make sure that your HML will lend you 75% if it's NOT your first deal or if it's in a larger city. If they don't even offer 75%, then seek another lender.

    And the main reason we want 75% of ARV is because on the conventional loan they will refinance the existing lien AND ROLL IN CLOSING COSTS. So it's critically important that your conventional option can lend you up to 85% of the transaction...so you don't come out of pocket again.

    And that 1 year thing on a commercial loan is an absolutely deal breaker.  I would certainly seek different options.  

    I did write a post for BP on how to find good lenders, including what questions to ask, that you can read HERE.  Let me know if you have any questions on it.

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  • David Brown
    OP
    Member since 2021 · 4 posts · 1 vote
    5y

    Thank you to both @Andrew Postell and @Matthew Crivelli for your replies.  

    Andrew - I read your post, also very helpful and lines up with some of the conversations I've been having.  David Greene covered the topic on one of the latest podcasts as well confirming that 6 months is a traditional answer for a lot of lenders, but isn't a hard and fast rule, therefore I need to continue to search.

    Your 75% comment is interesting because many of the HML websites I have been on are all marketing their products around a % of purchase price plus rehab, not starting at 75% of ARV which might (ideally will) cover the entire purchase price.

    Sounds like I need to continue to searching lenders on both the HML and long-term side.

    Thanks again! 

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