The numbers are in for our first BRRRR property!

[Amanda Brezina]

We just finished refinancing our first BRRRR property! Time to repeat the process!

We learned a lot on this first one. It went better than we anticipated it would. We had a fantastic team helping us out and are so grateful for all of you in this community for all of the information you've shared and your support!

We just finished the most nail biting part of the BRRRR (Buy, Rehab, Rent, Refinance, & Repeat) process - the refinance! Which means we only have one step remaining - Repeat!

The refinance was the most stressful for us many reasons. First and foremost, the ENTIRE process relies on a successful appraisal so that you can get approved for the loan amount you need to meet all the numbers you crunched to cover all of the costs (purchase and rehab) of the home. Secondly, it's our first refinance out of a hard money loan - the unknown! And finally, we had never done a cash out refinance before, so we knew it would be weird getting money at closing!

This was our first BRRRR property and honestly we went into it expecting the numbers not to be great when it comes to this methodology. We were expecting that our purchase and rehab would be about 100% of the LTV (loan to value), when a good BRRRR is 75% or less. We wanted this first one to be a learning experience and figured having a big rehab would give us that experience working through the entire process. We expected to leave our 20% down payment in the property and plan for the 75% of the loan to cover our hard money loan if all worked as planned.

With the housing market taking off leading up to the refinance, this put us in an ideal position to possibly consider doing a cash out refinance instead of a standard refinance. Meaning, we expected the appraised value to be high enough, that we could take a loan out that would both cover our hard money loan (purchase and rehab costs) AND take some extra cash out. That extra cash would be ideally be around our 20% down payment we put down to purchase the house. That took our planned three months refinance to the six month, but if it meant getting our 20% downpayment back, we were game. A gamble, given it was a guess the house would appraise for what we expected.

When we originally discussed this with our agent and mentor, these are the numbers we presented. A note about our process - we run our numbers pretty conservatively for the ARV and rent, assuming worse case scenario:

• Purchase: $60,000 (listed for $75,000)
• Rehab: $65,000
• ARV: $130,000
• Rent: $1,400
• Hard Money Loan: 12%, 3x points, 1 year term - interest only payments
• Return on Investment: 7.1%
• Cashflow: $342 (amount remaining after mortgage payment, 10% vacancy, 5% Repairs/Maintenance, 5% Capital Expenditure, 10% Property Management are paid)
• Purchased: March 2021

When you refinance, most banks will authorize a loan for 75% of the Loan to Value (LTV), so we were expecting a $97,500'ish loan (75% of $130,000). We knew we'd be leaving a lot of equity in the property (our down payment), but we were viewing this first one as a learning experience with a big rehab, hoping it would make future rehabs easier because we had already been through a big one. Thankfully we had a contractor that friends of ours had used to do similar work, so we were incredibly lucky for that, meaning there was some trust in the contractor from the get-go, translating to less stress.

The housing market explode over the course of the rehab, which drove home prices up higher than we expected. Great news for an upcoming appraisal - we hoped! So what did the numbers actually look like after it was all said and done?!

• Purchase: $60,000
• Rehab: $67,500
• ARV: $190,000
• Rent: $1,549
• RoI: Infinite
• Cashflow: $286
• Mortgage: $135,000 @ 3.125%
• Refinance Date: November 2021

$190k!? We were optimistically hoping for $175k, but a couple of recent sales in the neighborhood, to include next door, set us up for success. We decided to leave some equity in the property with that appraisal amount; our new loan could have been up to $142,500, an extra $7500 plus the required 25%, but our goal overall was to maximize cashflow, so leaving equity in the property meant a slightly higher cashflow.

So what's next?! Our second property is on the same street. We paid a bit more for it given the rise in home prices but it was also in slightly better shape. We plan to follow the same rehab plan, given it worked so well for the first one, so fingers crossed Property #2 has a similar story to tell!

Property #1 was a great learning experience in many ways. I cannot thank my team enough for a successful first purchase! We learned so much and gained a lot of confidence in the BRRRR strategy.

Thanks again to everyone. Time to finish up Property #2!

[Amanda Brezina]

Thanks, @Ben Parrish - same!

Thank you, @Cameron Tope. They are there, it just takes some extra digging! This one was on the market for over 100 days! Plus the inspection paid off, because my agent was able to negotiate more off the purchase price!

@Joe Norman, thanks! We've been in the Northeast area so far. Low crime areas are where we start. 

@Evan Zeigler, thanks for the note! Definitely read the book. It was a huge help! Best of luck!

@Ozzy Sirimsi, thanks! Northeast Baltimore.

@Caitlin B., we spoke to members of our team and got a recommendation from our agent. We had planned to use our planned Property Management company's contractors as a back up plan. Talk to people in the area to get recommendations! It's definitely an important part of the process, so it takes some time to build the trust. We just finished our second with the same team. I was pretty a hands on for the first property - there often to understand the process. Due to travel I was pretty hands off for the second. I've learned I need to be in the middle, to get ahead of some issues before finding out about them in the end. Get lots of estimates for your first to make sure you are choosing the best members for your team - I chose to go with one contractor for all, which probably cost me more, but made the whole process run more smoothly only having on GC to go through. He managed the subs. In the end I think it saved me money by taking less time on my end. Best of luck and I hope that it plays out well!

@Alan Hale - good question! The HML was the biggest headache for me in this whole process, but that was because I didn't understand that part of the process entirely, so that was partially on me :-) I've only worked with one, but I know most are similar with the draws. They do fund 100% of the rehab, but they won't allow you to draw until you can prove the work is done, so if you need to pay for materials for your contractor to get started, that will be out of your pocket. It will be reimbursed once the work is completed, but make sure you have the funds so you don't get caught in a Catch 22 situation where you have to pay your contractor, but cannot withdrawal the funds because the work isn't completed. It's to protect you, so you don't give the contractor too much money to ensure the work is completed. It's also an incentive to keep the rehab on schedule, because although you don't have access to 100% of the money, you are paying interest on all of it. I see both sides but it's still a headache - just remember it's allowing you to BRRRR!, Make sure you ask those questions and understand what is needed for the draw process before you get started. For the first draw, the owner had to come by to walk the property. For the second, I just had to send videos. So the more the trust is established, the more hands off they've been. If it's a good HML, they are a wealth of knowledge and are usually willing to share to help you out, so don't be afraid to ask questions! Good luck!