The BRRR / BRRRR Strategy: Buy Rent Rehab Refinance

THINKING OF USING THE BRRR METHOD?

This method of financing works best when you find an undervalued or wholesale property that you can force appreciation by renovating or updating.

This method isn't best used on property that you purchase at retail value. You are better off using conventional purchase financing for this transaction.

Recent changes to CASH OUT Financing;

- Conforming limits increased in 2023 across all states! Here is a link to see the max for your area!

Look Up Conforming Limits For Your Area!

BRRR / BRRRR....... Buy Rent Rehab Refinance..........& Repeat

CASH-OUT FINANCING

A cash-out refinance of your primary or investment property that allows you to pull equity up to the required LTV limits. The mortgage can either be paid off free and clear or have a low enough balance on the current mortgage versus the value to make it worth pulling out the equity in the property. Cash-out refinances are available on primary, second homes, and investment properties.

• The typical cash-out financing is done after 6 months of owning the property, based on ARV, and is available for mortgaged properties #1-10. Please see delayed financing for less than 6 months after closing.
• On a primary residence, you can pull out up to 80% LTV on an SFR and up to 75% LTV on 2-4 unit multi-families.
• On an investment property, A SFR, if you have #1-10 mortgaged properties, you can pull out up to 75% of the equity and on 2-4 units is up to 70% equity.
• On an investment property, If you have #7-10 mortgaged properties, including the subject property, you are required to have a credit score of 720, and are subject to a minimum loan amount of $50k!

• PROPERTIES LISTED FOR SALE - Must be taken off of the market before the disbursement date of the new mortgage.

Cash Reserves are Required For Other Properties Owned by Investor if doing a cash-out on investment property;

Cash Reserve Requirements;

6 months PITI is required on the subject property.

If you have 1-4 financed properties, - 2% of all unpaid principal balances

If you have 5-6 financed properties, - 4% of all unpaid principal balances

If you have 7-10 financed properties, - 6% of all unpaid principal balances

Money must be in the account for 60 or sourced! A HELOC can be used as a down payment.

DELAYED FINANCING EXCEPTION

Delayed Financing Exception

A cash-out refinance within 6 months of a purchase transaction when no financing was obtained for the purchase transaction. Delayed financing is allowed under the following parameters:

• The new loan amount is not more than the actual documented amount of the borrower’s initial investment in purchasing the property, plus the financing of closing costs, prepaid fees, and points (subject to the maximum LTV).
• CASH-OUT FINANCING AND DELAYED FINANCING HAVE THE SAME LTV REQUIREMENTS - BUT DELAYED FINANCING IS SUBJECT TO A MAX OF PURCHASE PRICE PLUS CLOSING COSTS.
• The purchase transaction was an arm’s length transaction
• The purchase transaction is documented by the HUD-1, which confirms that no mortgage financing was used to obtain the subject property. The preliminary title search or report must also confirm no liens on the subject property.
• The source of funds for the purchase transaction can be documented (bank statements, personal loan documents, HELOC on another property). Any loans used as the source for the purchase transaction will be required to be repaid on the new HUD-1
• Funds received as gifts and used to purchase the property may not be reimbursed with proceeds of the new mortgage loan. Funds of gifts are not allowed with investment purchases.
• All other cash-out refinance eligibility requirements are met, and cash-out pricing is applied. According to cash-out guidelines, this is allowed on primary residences, second homes, and investment properties.

Here are some links that you may find beneficial as well!

Freddie Mac's Guide to Refinancing, including Cash Out.

Fannie Mae's Guideline to Cash Out Financing.

Fannie Mae Guideline for Cash Out, Mortgaged Property 5-10.

This information is accurate as of the time of posting. Please also verify the accuracy of this information at the time you are considering these options as guidelines change.