If you have been following my blog series, you know we’ve already discussed a multitude of various items in term of lending and what it looks like. Most recently we laid out a case study breaking down how the right asset-based loan can work and enhance your ability to buy and renovate your investment property. “Hard Money vs Private Money” walked through Jim’s four-month journey and the importance of finding the correct lending source for your projects.
Now we are going to take a peek into what it will look like for our friend Jim to refinance his investment property into a long term 30-year loan to complete his Buy and Hold strategy.
Quick over view of Jim’s investment:
Purchase Price – $250,000 After Repair Value – $500,000
Renovation – $100,000
Estimated Closing Cost – $15,000
Total Money Needed – $365,000
Renovations are complete and Jim has a beautifully renovated home that is worth $500,000. Now let’s lay out a new scenario:
Jim has a 720 credit score and still works in a W2 job, which means he is a salaried employee. Jim is married to Mary who also has a healthy W2 job, but a slightly lower score of 700. They own the house they live in and both of them are on that loan.
Jim and Mary know that they can have up to 10 conventionally financed properties, but through research and because they have a fabulous lender (shout-out to the Blink Lending team!), they know that they can finance more than 10 properties. How is that possible, you ask? It can happen because Jim and Mary will put each individual investment property in only one of their names. This will allow Jim to have 10 and Mary to have 10. BOOM – that’s 20 properties all together.
For this exercise Jim will be putting this property in his name.
Jim can get up to 75% in a refinance through a conventional lender, how much of that 75% depends on how long he’s owned the property. If it’s less than six months, Jim can do a Rate/Term refinance, meaning he is simply refinancing the private money loan that he has including all documented repairs.
Jim took a lot of pictures and had an outstanding contractor to show all the well-documented repairs. The lender will require a new appraisal from an accredited Appraisal Management Company (AMC) and will lend Jim 75% of that value or the amount of his current loan (purchase price and all documented repairs) and here’s the twist: WHICHEVER IS LOWER… but can roll in his new closing cost as well all up to 75%. After six months, Jim would have cash out options with a 75% max. So, lets break down the math:
Jim owes $365,000 to ABC Lending at 10.99% interest. The property was appraised and came in at $500,000. Jim can borrow $375,000, which is great because we now can roll in the closing cost into this new lower interest loan at a significantly lower rate (low 3% interest). If his exit strategy is 5 to 10 years, Jim may consider buying down the rate getting his new rate into the 2’s. That’s all thanks in part to historically low rates in 2020, as well as working with the Blink team, of course.
To throw a final twist, let’s say Jim purchased this investment property in his LLC, the Deed of Trust reads that Jim’s LLC owns the property. Title will have to convert the deed over to Jim as the lenders of conventional loans will not lend to a entity but only individuals. This is easily remedied through the title company for a small fee around ($150-$200), which our Blink team can help guide and walk you through.
Call us today to learn more about the BRRRR Strategy and refinancing options.