BRRRR Method: Best Way to Refinance

Once you’ve gone through the (not inconsiderable) process of buying, rehabbing, and renting your real estate investment following the BRRRR method, the next step is to refinance.  

This is where you begin to reap the rewards of your strategy, with half an eye on the potential of starting the process again if you’re considering growing your property empire.

The Refinancing Step of the BRRRR Method

• Refinancing: it’s all about finding the best lender
• What type of loan is best?

Refinancing: it’s all about finding the best lender

Refinancing is certainly the least physically labor-intensive of all the steps of the BRRRR method. But don’t make the mistake of thinking that it doesn’t need careful consideration.

This is where you do a “cash-out refinance of the property” to release the funds (of your now more valuable property) to purchase the next. While many lenders provide such a service, it doesn’t take much digging to realize that there are many (many!) variables…

The main elements to ensure you get the best bang for your buck are:

• To secure the lowest interest rate possible on your cash-out refinance.
• To find a lender that will close the deal fast.
• To borrow money from a lender that specializes in such loans.

Sure, you can borrow Fannie Mae style. However, as most investors soon discover, these have strict restrictions on how and to whom they lend, you’ll need to provide loads of info (such as tax returns, income verification, employment, etc.), and it can take many weeks or even months before you get your hands on the cash.

Borrowing from a hard money lender is fast becoming the preferred way to refinance your BRRRR property. Not only do they offer competitive interest rates, but the closing duration can be as short as 21 days.

Such lenders often provide refinancing even if you’ve owned the property for less than six months. This makes servicing two BRRRR properties in a 12-month period a very realistic scenario (and not something you’d manage with a regular mortgage lender).

What type of loan is best?

The most popular loan for refinancing is a DSCR loan. This stands for debt service coverage ratio. In short, this means that the net rental income you receive will cover the loan repayments (and preferably have a bit of a buffer to service any unexpected costs).

These figures are worked out as follows:

Take the gross annual income that you received from renting out the property (let’s give it a nice easy number, such as $100,000).

Then you calculate all the annual expenses. This is made up of the principal sum of the loan, the interest, any taxes, insurance, plus HOA if applicable. If this adds up to, for example, $60,000 we then divide this by the loan amount.

$100,000/$60,000, which is presented as a ratio of approximately 1.67.

Ideally, this number to be 1 or above (in short, >1 is good, <1 is bad). This means that there is enough rental income from the property to cover your loan repayments. The higher the ratio number, the more favorable the interest rate you’ll be likely to get for a DSCR money loan.

Contact BRRRR Loans to Discuss Refinancing for Your Next BRRRR Method Investment

As our name suggests, BRRRR Loans is a nationwide specialist in helping investors realize their property dreams. We’ve got a wide selection of money lending programs on offer and have helped thousands of people make an excellent income through BRRRR real estate

Whether you’re looking for your first-ever property finance or are a seasoned investor, we’ve got a highly competitive range of loans to suit.

Discover why we’re the lender of choice for the savviest investors at https://www.brrrr.com/loan-programs