This is the next installment in a multi-post series on financing your rental investment properties using the BRRRR strategy.

You hear a lot about the BRRRR strategy (Buy, Renovate, Rent, Refinance, Repeat) and you have decided this is the way to build long term passive income and wealth.

You purchased a great low-end property for $30K, spent $15K on renovations, and with closing and holding costs, your total cash investment is $48K. You have also found a great tenant to rent at $700 per month. Holy moly! That is a stellar 12.5% cap rate!

Congratulations, you have just completed the BRR portion of the investment strategy. Now you want to add that third R for refinancing. You contact me to refinance the property and the first question I ask, “what’s the ARV?” With it fully renovated, and rent stabilized with a terrific tenant, you estimate $65K and I agree with your value. Your thrilled! You have $17K equity in this property! Champagne anyone? All you hear from me are crickets. Sorry, I cannot help you. What happened?

Most all lenders refinancing a single rental property require a minimum appraised value of $75K with minimum rent of $750. They will loan up to 75% LTV (loan to value) of the appraised value. The loan amount would then equal $56,250 ($75K x .75). There is one exception to this rule. If you have at least three properties to refinance in a portfolio loan with a minimum loan amount of $150K (rents $750+ per door), we can refinance it under our SFR3 loan program. Still with me? Even though the cost analysis and returns look great, it is not always a good fit for the BRRRR model.

PRO TIP: Make sure the property’s appraised value and rent meet the minimum lender refinance requirements before you agree to buy it. Otherwise, you will have cash invested indefinitely in a property unable to deploy on future projects, and that last R in BRRRR will have to wait.

Looking for funding? REI Trader, LLC has purchase, refi and fix and flip loan programs for your SFR, rental and multifamily portfolios. For rates and terms, please email jonathan@reitrader.com

Posted by Jonathan Mednick On June 21, 2021 // 0 Comments

Category : Blog