First Rental Refinance - BRRR

[Arianne L.]

Just wanted to share the results of our first rental refinance / delayed financing. My husband and I are in our first year of our real estate investing career. Hope to encourage some of the newer people here. There are deals out there and some great returns to be had, just persevere!

The deal:

3/2 1200sqft SFR in a B neighborhood in Fort Walton Beach, FL. Bought this short sale for cash in February. This was listed at $104,000 on the MLS

Purchase price including closing costs - $73,257 

Property came with a tenant who signed a new 1 year lease for $975. No repairs were needed. Market rent is $1100-1200 but the old tenants were great so we decided to keep them at the previous rental rate.

Property Appraised at $134,000

Just closed on the delayed financing and got $70,600 cash back out, after closing costs. Total time from purchase to getting the cash back was 10 weeks. 

Income: $975

PITI: $522

Repairs and Capex reserves 10%: $97.50

Property management 10%: $97.50 

Vacancy 8%: $78 

Net monthly cashflow: $180

Cash on cash return: 81% 

Equity: $61,000

For $2,657 invested we are projected to average $180/month positive cashflow (though currently, we are getting $355/month since we are self-managing, and have no vacancy yet which would be 160% cash on cash return if we can keep it up - fingers crossed). 

Now, we can use that $70,600 in cash for the next deal we have lined up!

Thank you @Jerry Padilla and MB Financial for a quick and smooth transaction.

Thanks to @William Allen for posting about one of his BRRR deals which got us looking in the right direction

And of course @Brandon Turner and @Joshua Dorkin for bringing us BP which helped us get started in real estate!

[Arianne L.]

@William Morgan Yes, you are correct, my lender applied a loan amount "no more than the documented amount of the borrower's initial investment in purchasing". The loan amount is exactly my initial investment which is $73,257. This was 100% of purchase price financed. Deduct Closing costs of 2,657, and we arrive at the $70,600 cash that's back in our bank account.

The LTV is from a current appraisal. For delayed financing, you can finance up to the lesser of 70% of the appraised value, or your initial investment.

So, if the property was only appraised for $90,000, we would have only been able to finance $63,000 not the full $73,257 we paid. Since the appraised value was $134,000, we are only at 54% LTV which actually resulted in a lower interest rate.

This is not a loophole or a secret. Most banks will do delayed financing if it meets all the requirements. You can find a list of the requirements at https://www.fanniemae.com/content/guide/selling/b2..... in the "Delayed Financing Exception" section

Basically, you buy for cash, and if you get a loan within the first 6 months of buying the property, you can pull all your initial investment back out, as long as it meets 70% LTV. So, if you want to get back 100% of your purchase price, you have to buy it with at least a 30% discount. There is another member here on BP who does this continuously, and I believe he even uses hard money for the initial purchase and it still qualifies for delayed financing.