2 Tips for Refinancing Your BRRRR
So you bought a distressed property and fixed it up using money from a lender like Backflip: Good. You found a renter: Great! Now comes the key to BRRRR — the ‘refinancing’ step — where you pay off your initial loan and shift to long-term, lower-rate financing, so that you can rinse and repeat for more doors. Here are two tips for making refinancing your property simpler, so you can keep moving from deal to deal with ease:
Tip 1: You have options outside of larger banks
For more flexibility and favorable terms, look for options outside of larger banks. Large banks sell mortgages to Fannie Mae or Freddie Mac, which means lots of borrower rules and regulations. A borrower-friendly lender, like Backflip or a small local bank, will focus on the property’s debt service coverage ratio (DSCR)—which is the income or cash flow generated by the rental —rather than the debt owed. Every lender checks credit score and personal income, but Backflip will consider the overall picture rather than deciding based solely on credit score.
Since Backflip is able to finance both the acquisition/rehab step, and the long-term refinancing step of the process, it is the perfect one-stop-shop for BRRRR investors. But let’s say you are looking for an alternative refi option. Well, start with that small, local bank. Call them and explain that you have a rental property that is fixed up and rented, and you want an 80% cash-out refinance. The bank will send a third-party appraiser to assess the property’s market value, and offer you a loan for 75-80% of that amount, which is usually tax-free since it’s considered debt.
Tip 2: Be proactive in the appraisal
Arrange to meet the appraiser at the property on the day of the appraisal, and when they get there, hand them a comprehensive packet of information. Include details of all the improvements you made, the amount of money invested, what you think the property is worth, and sales comps. While the appraiser may not use your comps, it helps them understand your perspective and don’t be shy in saying why you hope the property appraises for a certain amount: to pay off your initial lender without going out of pocket. By being prepared, and presenting your case, you increase the likelihood of a successful appraisal, setting you up for your next investment venture.
Following these key tips and you increase your chances of a successful cash-out refinance, allowing you to continue growing your real estate portfolio. See you on the next one!