Cash Out Refi's are currently not feasible.

[Rob Klotz]

I have been looking to start my first BRRRR strategy. As we know, the BRRRR Method means "buy, rehab, rent, refinance, repeat," and describes a strategy and framework used by investors who wish to build passive income over time. This acronym represents steps that should be implemented in the exact order they appear.

As I collected my "Core 4" (Agent, Property Manager, Lender and Contractor) for BRRRR implementation, I received a call from my lender two days ago telling me that cash-out refinancing is drying up. This is because banks and mortgage lenders are tightening underwriting standards to cover the risk of millions of borrowers seeking forbearance on their home loans.

He said that despite ultra-low interest rates and the need by many homeowners to raise cash because of job losses and economic uncertainty, many homeowners are priced out of the market for cash-out refis.

I immediately scoured the internet for more information and found an article by "American Banker," dated May 4, 2020.  It stated that Mortgage lenders have released new rate sheets in the past week showing higher credit scores and loan-to-value ratios plus added fees for cash-out refis. The changes are in response to the Federal Housing Finance Agency's policy last month that excludes cash-out refinancing from the single-family loans that Fannie Mae and Freddie Mac will buy in forbearance.  

The article also had a quote: "Pricing for cash-out loans is so bad that it's not even worth quoting to a borrower — they have shut this market out," said Logan Mohtashami, a senior loan officer at AMC Lending Group in Laguna Hills, Calif. "No one wants the business so lenders price the mortgage rate on a refinance so high that it doesn't make sense to cash out."

Also, more than 30 million people who have filed for unemployment in the six weeks since the coronavirus outbreak forced employers to shut down and lay off workers. Few in the mortgage industry think the reopening of businesses will reverse the higher standards for cash-out refis.

This new information is very disturbing for a real estate investor who is looking at implementing the BRRRR strategy.

Does anyone have some thoughts on how I can continue with the BRRRR strategy without being priced out of the market?

Look forward to any thoughts.  Thank you

Rob