All Forum Posts by: Eddy Baik

Hi All: Doing my first BRRR + STR (will do hybrid STR/MTR; MTR = mid-term rental) in Indianapolis, educating myself on which lender might be best for cash out or rate & term refinance that specializes or takes into consideration the increased projected rents from doing this as opposed to LTR (long-term rental).

Reading the forums, it seems Visio and Aloha Capital do STR specific refinancings. What other lenders do this and what terms/rates are you seeing? Which is the best lender in your opinion for this strategy?

@Andrew Postell elaborating on why I was secretly hoping you might be willing to refactor and expand your posts into an ultimate blog post

One, I haven't yet seen a great one online

Two, friends who are also starting out in RE investing like me are asking me what I understand because they know I'm prone to analysis paralysis because I can't help but research a lot haha. And as I answer their questions, I realize I'm still firming up my understanding and have gaps. I thought I'd share below my recent chat message (pasted below in quotations) to a friend summarizing my understanding - not even sure I'm 100% correct. Would love if you have time to point out where I'm off. You can see my fundamental understanding is built upon your amazing posts!

Two sidenotes: 
- when I talk about ARV below it means purchase price + rehab + forced appreciation
- this person made a blog post about the same borrow from LLC idea as you noted when purchasing with cash https://www.biggerpockets.com/... but I think his note is a bit more explicit about how you can leverage it to incorporate the estimated ARV (including forced appreciation) for LTV... it's in your post too but for a n00b it's harder to see it without reading it several times, getting more educated and coming back to your post again before one sees it more clearly

"I'm no expert here - so the following is my current understanding and I could be wrong. For me to really understand (because I still have my own questions), I need to talk to a few more expert lenders and ask the right questions

It seems the seasoning is only required by Fannie/Freddie if doing cash out refinance with a conventional loan which is why it comes up as an issue for BRRRR.

So keep these 2 principles in mind to help you navigate through the complexity: conventional loan cash-out refinance and time on title seasoning (6 months time is the key principle, a lot of the articles etc online talk about 6 months of payments which causes confusion... I've confirmed it is a time seasoning not a 6 payments seasoning and this matters because then it doesn't matter whether you bought the property with a loan or cash https://selling-guide.fanniemae.com/Eligibility/Mortgage-Eligibility/Loan-Purpose-/COR/109[…]ng-requirement-for-a-cash-out-refinance-transaction.htm)

For a cash-out refinance, Fannie/Freddie apparently requires 6 months time on title before refinancing. Keep in mind the main reason why you'd ever want to "cash-out" refinance - only if property appreciated in value (either due to economics supply/demand or you forced appreciation via rehab)

See this article: https://www.biggerpockets.com/forums/48/topics/460294-how-to-cash-out-1-4-unit-property



(1) If you use conventional loan originally, what's clear to me is that if you try to use conventional cash-out refinance loan later then you need to wait 6 months before refinancing. Alternatively, I believe you can use portfolio/DSCR loan to refinance (in your name or transferring title and then borrowing as LLC) with lender who has no seasoning required.

That all said, I think this scenario never comes up because if you originally buy with conventional loan then the RE investor is either doing a rent-ready buy and hold OR the property isn't that distressed enough so that a lender is willing to give a conventional loan but even if you add value with some light rehab, you don't force enough appreciation for a refinance to be worth it in < 6 months.

(2) If you buy a property in cash and later want to do cash out refinance, I think generally there are 3 paths

(A) there is this approach called delayed financing with no seasoning requirements - the main limitation is that the LTV is against the purchase price not the ARV but seems like people have found a way around this (see: https://www.biggerpockets.com/blog/work-with-lenders-brrrr-method). Then there's also the borrow from LLC approach in the first link above

(B) use portfolio/DSCR loan from lender with no seasoning requirements on time of name on title (not even sure if any portfolio lenders even have any seasoning requirements if property was purchased with cash)

(C) if you want a more straightforward conventional cash out refinance (straightforward in that ARV after rehab determines LTV and not original purchase price like delayed financing) then I think the 6 month seasoning is still required (not because you made 6 months of payments having originally used a loan to purchase but because conventional lenders still require 6 months time of name on title)

(3) Can use Hard Money Loan (hard money mostly requires LLC I'm told) and then refinance using DSCR loan as LLC all the way through the short-term and long-term financing

Disclaimer: the above is my current understanding, I could be wrong anywhere in the above"

@Andrew Postell Interesting thanks for the response. I could have sworn that hard money lenders are stating LTVs with respect to purchase price and then separately mention whether they allow for covering X% to 100% of rehab costs too. Even the BRRRR deal analysis calculator I'm using is doing this. I'll call these lenders and confirm again. Two I've talked to are (https://www.limaone.com/hard-m...) and (https://brrrr.com/loan-program...). I guess I also wonder how the HML would lend against ARV when all you have is a distressed property with current negotiated purchase price and an appraisal to confirm ARV won't be available until after rehab is completed and you attempt to refinance right? Or when you say ARV do you mean ARV = purchase price + rehab costs because I was assuming ARV = purchase price + rehab costs + forced value added appreciation

On a sidenote: Your 3 seminal posts (How To: Cash out 1-4 unit Property, How To: Find Real Estate Investor Friendly Lenders, How To: Avoid Seasoning when Refinancing) are something I keep referring back to repeatedly. Would you ever want to consolidate and create a blog post to pull this amazing info out of forums to make more accessible (the Q&A posts and responses are valuable obviously too but...) and perhaps expand a bit to what you've already written? For example, 3 things that if you also added to your original post would make it more complete and then I think it would be the ultimate seminal piece for anyone to learn about lending

(1) Call out "delayed financing" term and connect it more explicitly to what you've written (as a n00b I didn't make this connection until much reading and research later after reading your posts)

(2) Perhaps add this additional item that people seem to do that makes delayed financing another option when purchasing with cash if you feel it's legit (seems so): https://www.biggerpockets.com/...

(3) Connect, expand and elaborate more on the portfolio loan side of things for a new RE investor with what you've already written - posts are focused mostly on conventional loans but for someone who is evaluating BRRRR in LLC from the start, such an expansion would be super helpful. It's a super confusing world out there and many DSCR lenders now seem to be giving terms on par to conventional loans (albeit interest rates of course are higher still)... I'm still learning and talking with lenders to firm up my understanding. For example, you could elaborate on the notions of recourse/non-recourse, personal guarantees, evaluate and summarize the range of DSCR lenders (those that seem to offer 30 yr fixed in particular), local vs national HML general things to know, and how financing works for purchasing from wholesalers. I also see posts where people are asking about borrowing in personal name from HML (which generally seems not the case due to legal compliance issues for HML) and how HML and DSCR loans make sense to do combined when purchasing in LLC (I see some folks asking about buying via HML and then refinancing with conventional loan - not even sure this is possible but if so, you'd have to transfer title to personal name too which I don't think makes sense to do?)

@Andrew Postell I'm rereading this and forgive my noob-ness here. But trying to process in the The “conventional” Cash Out Refinance section this:

"Most Hard Money Lenders (HML) will lend 75% of the ARV on a SFH" - in BRRRR, I think of HML for original distressed property purchase (and possibly covering rehab costs too) in which case the HML is lending 75% of the purchase price (not ARV) on a SFH. I feel like I'm missing something here?

@Andrew Postell Just wanted you to know your amazingly detailed post has helped yet another newbie RE investor - me! Thanks so much for writing it and sharing