Tag Archive for: how to refinance

What is the “BRRRR Buy Box”? And Why Do You Need It?

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Want to guarantee a successful rental property? Learn the framework: The BRRRR Buy Box.

Every BRRRR has a “buy box.”

If you don’t know yours, then you jump into the refinance stage blind. You can end up with negative cash flow, more required out-of-pocket, or not even qualifying for a refinance at all. 

We’ve had clients live this nightmare. One came to us at the end of a BRRRR just to find out three of their properties wouldn’t cash flow, so they had to sell them. All because they didn’t learn their perfect BRRRR Buy Box before they started.

Let’s go over the BRRRR Buy Box to save your next rental from the same fate.

What Is the BRRRR Buy Box?

So, what is the BRRRR Buy Box? It’s a set of parameters to keep your BRRRR on track to a successful, profitable refinance. What’s in it? There are four important numbers:

  1. What is your minimum cash flow requirement? Not only yours, but what is your lender’s minimum net cash flow for you to qualify? 
  2. What amount, if any, do you want to put into the property? This is money that you’re willing to keep in the property. You don’t get it back out at the refinance. 
  3. What’s the maximum loan you feel comfortable with? What do you qualify for? What fits your cash flow requirements for this particular market?
  4. What’s your maximum amount for purchase and rehab? These numbers are vital to keep you in-budget with cash flowing.

Let’s go through an example of what a BRRRR Buy Box would be. 

Example BRRRR Buy Box

Cash Flow Requirements

Let’s start with the first question. Say your minimum needed cash flow for a property is net $500 per month.

This is your first criteria, so you want to make sure every property you look at would cash flow $500/month. To predict cash flow, you can approximate rent in the area of the property, as well as estimate the monthly mortgage payment and other costs. 

If you know you can charge $2,000 for rent, but your loan, taxes, and insurance will equal $1,450, then you can predict a $550 monthly cash flow.

Cash Put into the BRRRR

How much money do you want to put in? Some people do BRRRR for the appeal of zero down properties. Other people want to put as much in as possible at the beginning to keep loan payments down and cash flow up.

Having a target number helps you better set up your refinance.

Maximum Loan

The maximum loan doesn’t always mean the highest possible loan you qualify for. Rather, it’s the loan that works best for the property and the situation.

What is the maximum leverage you could use and still meet your cash flow requirements and the bank’s refinance guidelines?

Most banks will refinance you on rate-and-term from 75 – 80% of the appraised value, as the house sits after you’ve bought and rehabbed it. Cash out refinances cover somewhere between 65 – 75%. That may be too much for your particular area, or not enough. It’s important to understand the maximum loan for your particular deal.

Purchase and Rehab Budget

Finally, what is the maximum amount of money you can put into the purchase price and rehab? What budget fits in your buy box?

Remember that on top of the purchase and rehab, you’ll still have carry costs and closing costs. All of these numbers will have to fit within your budget.

Prevent and Prepare with Your BRRRR Buy Box

We believe in this quote:

“Prepare and prevent. Don’t repair and repent.”

This line applies to all real estate investing, but especially BRRRR. The BRRRR Buy Box is a framework designed to help you bring a “prepare and prevent” mindset to your rental investments.

The BRRRR Buy Box involves keeping the refinance at the forefront of the process. You need these 4 key pieces of information before ever closing on a property:

  • Cash flow requirement.
  • Money you can put in the property.
  • Required loan amount.
  • Purchase and rehab budget.

Knowing the BRRRR Numbers

If the maximum loan you want to do is $250,000 and you’re willing to put in $30,000, that makes $280,000 total for everything. This “everything” includes the purchase, both closings (for the initial loan and the refinance), all construction costs, and carry costs.

There are a lot of reasons to prepare for BRRRR. Poor prep results in holding the house longer, missing out on vital rent income, and paying high interest rates on a hard money loan.

Before diving into BRRRR, remember:

  • The house can involve major repairs.
  • Your lender could delay the appraisal process.
  • You need to factor closing and carry costs into your total budget.

Don’t give up on BRRRR

Make sure you’re prepared to win at BRRRR. Know your BRRRR Buy Box, and you’ll be successful.

Nine out of the 10 people we meet who stop doing BRRRR give up because they got to the refinance and it just did not work.

They didn’t prep their buy box ahead of time. They had to bring in too much money. The house did not cash flow. They didn’t qualify for a refinance. They got stuck with a hard money loan sitting on the house, eating away at their funds.

In this situation, people usually sell at a loss, then they’re turned off from BRRRR forever.

BRRRR is an excellent process. It’s a smart way to get into rentals, if you prevent and prepare before you start buying. 

Download this free BRRRR tool to plug in your numbers and understand your BRRRR Buy Box quickly and easily.

Help with Your BRRRR Buy Box

If you’re left with any questions or have a potential BRRRR deal you want us to look at, we’d be glad to help. We can go through the numbers for you and help you find your BRRRR Buy Box.

Send us an email at Info@TheCashFlowCompany.com.

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Why You Need to Start BRRRR with Refinancing

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“Refinance” is the fourth step in BRRRR. But maybe we should start BRRRR with it…

Resting your cash flow on the shoulders of a loan you don’t even know you can get.

Spending time and money on a fix-up that might not even pay off.

Buying at a high interest rate with no guarantee of a refinance.

This is what you’re doing when you jump into a BRRRR before figuring out your long-term loan. This is why you need to start BRRRR with refinancing.

How to Start BRRRR with Refinancing

The refinance is where you make your money in a BRRRR. Refinancing determines the cash flow, your money out-of-pocket, and the financial success of the project.

If everything hinges on the refinance, why would you wait until the fourth step of the process to start figuring it out?

You need to mentally move the third R, “Refinance,” up to the beginning of the process, before you even buy.

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BRRRR Refinancing Questions to Answer

There are certain questions you should know the answers to before you put money down on an undermarket property.

You can get the cheapest house out there, with the highest ARV… But if you aren’t able to get a decent refinance for it, you’ll still lose money.

Here are some questions you should be able to answer at the beginning to ensure you don’t do BRRRR wrong:

  • What loan-to-value (LTV) does the bank require?
  • When you go to refinance, will you have to bring in money? How much?
  • Will it cost more money than you have? Or more than you want to spend on this project?
  • Will you do a rate-and-term or cash-out refinance?
  • What will be your cash flow on the property?
  • What’s the minimum cash flow you need? What about the minimum the bank needs?
  • Does the bank require investment experience to lend you a refinance loan?
  • Does the bank have reserves requirements? (This is usually around six months’ worth of payments the bank requires you to have in savings or a mutual fund).

If you don’t know the answer to these questions up front, you end up like a lot of buyers who get BRRRR wrong and lose money.

You get to the refinance part of the process and learn you don’t have enough money to bring in. Or you find the cash flow is bad. This is why you should start BRRRR with refinancing.

Read the full article here.

Watch the video here:

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You Are Doing BRRRR Wrong

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Most people do BRRRR wrong. Here’s the step they usually miss.

Buying properties at undermarket prices. Fixing them up. Keeping them as rentals. Refinancing.

We’ve helped clients with this process for over 20 years. What’s the biggest error we see people make?

They don’t start with the end in mind.

Many beginning investors take the order of the BRRRR acronym literally. They buy, rehab, rent, THEN try to figure out what the refinance will look like. That’s actually doing BRRRR wrong.

Going into the refinance blindly is how to do BRRRR wrong. At best, you won’t know how the property cash flows. At worst, you can’t get a refinance loan at all.

Let’s look at what you need to do instead.

How to Keep From Doing BRRRR Wrong

The refinance is where you make your money in a BRRRR. Refinancing determines the cash flow, your money out-of-pocket, and the financial success of the project.

If everything hinges on the refinance, why would you wait until the fourth step of the process to start figuring it out?

You need to mentally move the third R, “Refinance,” up to the beginning of the process, before you even buy.

Refinance Questions to Answer

There are certain questions you should know the answers to before you put money down on an undermarket property.

You can get the cheapest house out there, with the highest ARV… But if you aren’t able to get a decent refinance for it, you’ll still lose money.

Here are some questions you should be able to answer at the beginning to ensure you don’t do BRRRR wrong:

  • What loan-to-value (LTV) does the bank require?
  • When you go to refinance, will you have to bring in money? How much?
  • Will it cost more money than you have? Or more than you want to spend on this project?
  • Will you do a rate-and-term or cash-out refinance?
  • What will be your cash flow on the property?
  • What’s the minimum cash flow you need? What about the minimum the bank needs?
  • Does the bank require investment experience to lend you a refinance loan?
  • Does the bank have reserves requirements? (This is usually around six months’ worth of payments the bank requires you to have in savings or a mutual fund).

If you don’t know the answer to these questions up front, you end up like a lot of buyers who get BRRRR wrong and lose money.

You get to the refinance part of the process and learn you don’t have enough money to bring in. Or you find the cash flow is bad.

Prepping for a BRRRR Buy

Does it make sense to buy a property (with a higher interest loan), put all the money into repairs, rent it, and THEN figure out whether it’s a good or bad investment?

It takes just a little time and effort up-front to figure out if a property is worth pursuing.

We like to call this time up-front “building your BRRRR buyer’s box.” It’s a process that helps you prepare for the refinance ahead of time so you don’t do BRRRR wrong.

Going into a property, you should know:

  • Your max LTV
  • Your cash flow minimum
  • How much cash you’ll need to bring in
  • What rehab budget you can afford.

Do BRRRR Right

Download our free BRRRR Checklist to understand the numbers of your refinance. Make your rental property a success.

Leverage determines whether you’ve done BRRRR wrong or right. All real estate investing hinges on leverage, and our goal is to help you create the best leverage possible. 

Using the right debt will accelerate your business, while the wrong stuff will slow your investing career to a halt.

If you have questions about a BRRRR product, email us at Info@TheCashFlowCompany.com.

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How to Refinance with Real OPM

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What are the advantages to refinance with Real OPM?

Refinancing can get you out of some rough situations with your fix-and-flips in this market.

While there are many loan products you can shop for to save your flip, good ol’ OPM (Other People’s Money) can be the easiest, fastest, and cheapest way to refinance.

Let’s look at why you might need to refinance your flip and why you should try to refinance with real OPM.

Why Should You Refinance a Fix-and-Flip?

The most important thing about this market is that you use it to your advantage to prepare for the next market.

We anticipate that over the next 12 months:

  • The Fed is going to continue raising rates.
  • The economy will soften.
  • There will be great real estate deals like we haven’t seen in years.

You want to make sure you’re money-ready for those opportunities. You don’t want properties sitting on the market, taking up your time and energy, and tying up your funds.

So when you have a house that just won’t sell… What are you supposed to do?

Of course, there are traditional refinance methods. You can go to a bank and get a Fannie or Freddie non-conforming loan. But these loans need you to fit into a pretty small box. What if you own too many properties? Or you need your refinance loan fast? What if you don’t fit in the box?

That’s where refinancing with real OPM can come in handy.

Refinance with Real OPM

When it comes to real estate investment funding, OPM is almost always the best choice.

OPM is Other People’s Money. You match up with a real person you know who has money. These are usually retired people, or people nearing retirement.

Inflation is hitting them as bad as it’s hitting you. If they have a lot of cash, they probably want to put it somewhere more stable than stocks and with a better return than a bank account.

If you can offer these people a 5% to 7% return, then they may be willing to become your lender. OPM isn’t as concerned about typical loan qualification requirements. OPM done right is a win-win for both parties.

Overall, the fastest, easiest, cheapest way out of a fix-and-flip that’s stuck on the market is to refinance with real OPM. This form of lending is what you need most now. Prioritize finding these lenders.

What Are Your Next Steps to Refinance Out of a Fix-and-Flip?

If you have a flip that’s in trouble, let us know. We fund some loans ourselves, and we scour the nation looking for all the best loan products available. Let’s find the best debt for your position.

Send your questions to Info@TheCashFlowCompany.com. We’re happy to look at your loan, and if we can’t help you, we probably know someone who can.

Read the full article here.

Watch the video here:

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3 Ways to Refinance Out of a Fix-and-Flip

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This market can put your flips in a bad spot – here are 3 ways to refinance out of a fix-and-flip!

As a flipper, you’ve probably noticed the change in the market.

Properties are sitting on the market longer, and price decreases are not helping. When your flip lender comes calling for their money back, what are you supposed to do?

You have two options:

  • Take the price hit, sell, and cut your losses.
  • Refinance.

Often, refinancing can get you out of a bad spot and still let you come out with a profit. Let’s go over your options and review 3 ways to refinance out of a fix-and-flip.

Why Should You Refinance a Fix-and-Flip?

The most important thing about this market is that you use it to your advantage to prepare for the next market.

We anticipate that over the next 12 months:

  • The Fed is going to continue raising rates.
  • The economy will soften.
  • There will be great real estate deals like we haven’t seen in years.

You want to make sure you’re money-ready for those opportunities. You don’t want properties sitting on the market, taking up your time and energy, and tying up your funds.

So when you have a house that just won’t sell… What are you supposed to do?

Of course, there are traditional refinance methods. You can go to a bank and get a Fannie or Freddie non-conforming loan. But these loans need you to fit into a pretty small box. What if you own too many properties? Or you need your refinance loan fast? What if you don’t fit in the box?

That’s where these 3 unique loans to refinance out of a fix-and-flip come in handy.

1. DSCR Loan

Are you open to keeping your flip for a little longer term? Would you convert it to a rental in the meantime? If so, a DSCR loan is a great way to refinance out of a fix-and-flip.

A DSCR loan is a type of rental loan, based only on:

  • Your credit
  • Rental income from the property (not your personal income)
  • LTV (appraisals, listing price, etc that show the value of the home)

If you’re considering a DSCR loan, let’s look at the pros and cons of shifting gears from a flip to a rental.

DSCR Loan Pros

A DSCR lender will loan you up to 80% of the value of the home.

Cash Flow Opportunity for Your Flip

Your options for a DSCR loan product are broad. You can get anything from an interest-only to a 40-year loan.

With these options, you can spread the payments out. With lower payments and a potential tenant, you can match the cash flow to break even on the property (or maybe even bring in positive cash flow!).

This cash flow frees up your money to buy more flips and keep your business going. With that free money, you can jump on the good deals that will pop up in the next few months.

“Easy” Loan

Some of the biggest advantages of a DSCR loan is how easy it can be to apply and qualify.

For this type of loan, there are no income requirements. You just need good credit and rent that covers the monthly loan payment.

DSCR Loan Cons

There’s one important trick to refinancing a house that’s been on the market:

The appraiser is going to use the last price the house was listed for in their appraisal.

It’s tempting to drop the price when you have a flip on the market to try and attract a buyer. But once you decide to refinance, your house won’t appraise for higher than that lowest listed price.

So, it’s important to decide what you want to do with a flip ASAP. If you know you may want to refinance, you don’t want to keep lowering the list price, or it will negatively impact you.

Pre-payment Penalty

All DSCR loans have some kind of pre-payment penalty. Many are for around 3 years.

This means you have to keep the loan for that period of time, otherwise you’ll be charged a percentage fee for paying off the loan early.

If you want to keep this loan on your property for less than 3 years, you’ll be stuck paying that pre-payment penalty with a DSCR loan.

Not Available for Rural Areas

Also, DSCR loans are not designed for smaller towns. They can be great if you’re in a larger community, but they’re just not available in small ones.

And as money tightens up overall in the real estate lending space, DSCR programs are tightening up too. Rates will go up, LTVs will go down, and they will concentrate more on city centers. 

Most DSCR loan programs go as far as 25 miles from a city. But anything that shows up rural on an appraisal will likely not qualify for DSCR.

2. Bridge Loan

A bridge loan is a short-term loan that’s designed to give you flexibility on flips that are slow to sell.

With a bridge loan, you’re free to keep the house on the market, or convert it to a rental. The main purpose of a bridge loan is to get you out of a tough situation with the lender of your flip. What you choose to do with the house afterward is flexible with a bridge loan.

Bridge Loan Pros

Bridge loans are designed to help you refinance out of a flip. It gets you out of your original loan quickly –which is crucial when you’re getting calls from your lender. Plus, it helps you from paying high monthly payments with no cash coming in.

Additionally, bridge loans:

  • have no pre-payment penalty
  • can be interest only
  • close very quickly.

Bridge Loan Cons

Too Short-Term?

Bridge loans are short-term – varying between 1 and 3 years. 

In our market, we don’t expect interest rates to trend down for at least another year. If your bridge loan only covers you for a year, that might not be enough time to carry you into a better market.

You’ll want your refinance bridge loan for at least 2 years to give you some flexibility with the property.

You may need to shop around – 3-year bridge loans can be difficult to find, and many are limited to 1 year only.

Low LTV

Bridge loans are usually only 65% to 70% of the house’s current appraised value. 

Again, remember that your listing price will have a direct impact on that appraised value. If you slide the price down on the market to attract buyers, your refinance loan will be lower.

DSCR vs Bridge Loan to Refinance Out of a Fix-and-Flip

When we meet with a client about how to refinance out of a fix-and-flip, we weigh DSCR loans against bridge loans.

There’s always a tipping point – usually somewhere between the 14th and 17th month of a DSCR loan – where the pre-pay fee becomes cheaper than a bridge loan.

Bridge loans typically have 2% to 4% higher annual rates over a DSCR loan. Always analyze this tipping point, and choose the right loan for you based on the length you’ll need it.

3. Real OPM

When it comes to real estate investing, OPM is almost always the best choice.

OPM is Other People’s Money. You match up with a real person you know who has money. These are usually retired people, or people nearing retirement.

Inflation is hitting them as bad as it’s hitting you. If they have a lot of cash, they probably want to put it somewhere more stable than stocks and with a better return than a bank account.

If you can offer these people a 5% to 7% return, they may be willing to become your lender. OPM isn’t as concerned about typical loan qualification requirements. Done right, OPM is a win-win for both parties.

OPM is the fastest, easiest, cheapest way to refinance out of a fix-and-flip. Real OPM is what you need most now. Prioritize finding these lenders.

What Are Your Next Steps to Refinance Out of a Fix-and-Flip?

If you have a flip that’s in trouble, let us know. We can help you find your tipping point between DSCR or bridge loans.

We fund some loans ourselves, and we scour the nation looking for all the best loan products available. Let’s find the best debt for your position.

Send your questions to Info@TheCashFlowCompany.com. We’re happy to look at your loan, and if we can’t help you, we probably know someone who can.

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How To Refinance and Boost Your Cash Flow

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How To Refinance and Boost Your Cash Flow

Today, let’s explore how to refinance and boost your cash flow.

It’s probably pretty safe to say that in the real estate world, cash flow is KING!  Because cash flow makes life flow.

But what does cash flow mean to you? Because it comes in all shapes and sizes.

What cash flow means to one investor might be very different from another.

Let’s look at an example.

We have 3 real estate investors: John, Jane, and Jack.

John likes to focus on putting less money down so he can keep more money in his pocket.

Jane likes to focus on making consistent monthly income.

And Jack likes to focus on using cash-out refinancing to gain the most leverage.

Today, let’s take a closer look at Jack’s strategy.

It’s a simple one, but popular, especially during a refinance boom.

Essentially, Jack likes to refinance all of his value-add properties every 3-5 years so he can unlock his equity and bring more money into his life. He can use this money for personal or business matters, but it’s usually for something personal.

Now let’s break this simple strategy down a bit more.

So, Jack owns 3 properties.

He bought each one for $100K.

After 3 years, each property gains $25K in equity. So, Jack refinances and takes the $25K out of each property. All because he wants to use the money for…whatever! Maybe he wants to pay off his credit cards, buy another value-add property, or go on an epic skiing trip to the Alps. The sky’s the limit.

Well, mostly.

Once Jack has this money, he relaxes for another 3-5 years. Then, if interest rates drop, or he gains more equity, or both, he’ll refinance again. And, again, he’ll use the money for whatever he needs or wants in life.

The process repeats over and over until Jack decides to sell his properties or find a different cash flow strategy.

Now, Jack’s method of refinancing isn’t for everyone. But it’s definitely a popular cash flow strategy that many investors enjoy using.

Is it the right strategy for you? Our team is here and ready to help you discover the best path for you.

Happy investing!

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