The Final “R” in “BRRR”: A Step by Step Guide to Refinancing
In you’re familiar with Brandon Turner’s BRRR strategy, then you know the final, and possibly most exciting, part of the process is the cash-out refinance at the end.
BRRR is an acronym for a popular investment strategy that stands for:
This process starts with buying a below market fixer-upper, rehabbing the property to make it rent ready, renting out the property, and then refinancing into a conventional fixed rate mortgage.
Why would you refinance? To get some, if not ALL of your money back!
I’ll go into a deeper explanation of the BRRR strategy in another post as this post will serve as a step by step guide on how to refinance a property and pull cash out for future investments.
I will update this post as we journey through the process ourselves with our first investment property so you can see the actual steps, the timeline, and what is needed for the process.
A fellow New Jersey real estate investor and blogger, Sunny Burns at FamVestor.com, chronicled his journey of buying his second investment property and I found this format super education.
August 14th- August 25th
I began the search for the best bank/lending company to use for the cash out refinance. I called a bunch of banks with a specific criteria in mind.
- A lower interest rate than my current loan (4.875)
- A seasoning period of at most 6 months
- At least 75% Loan to Value (LTV)
- Low closing costs
I reached out to eight banks and lending companies. Below are my notes on each one.
After reading great reviews about Garden State Home Loans, I negotiated with them a bit and we agreed on an interest rate of 4.125 for a 30 year fixed conventional loan with $2,400 in closing costs.
I then received an email from the Assistant Loan Officer who I’d be working with that included:
- A formal quote outlining the details of the loan
- A list of documents needed for the loan application
- 2016 Federal Tax Returns with all pages (not state tax returns)
- 2016 W2’s
- Most Recent Paystub (must be dated within 30 days of applying)
- Copy of Most Recent Two Monthly Asset Account Statement with all pages for all accounts (I.E. checking, savings, money market, mutual fund, stocks, bonds, annuity, retirement account, etc)
- Copy of Most Recent mortgage/home equity line of credit statement for existing loan(s) on property
- Proof of homeowner’s insurance – Copy of Home Owner’s Insurance Declaration Page or Full Contact Information for Home Owner’s Insurance I.e. Company Name, Phone Number, Policy Number, and Point of Contact (If Applicable)
- Copy of Driver’s License
- Directions on how to load the needed documents onto their easy online application portal
I emailed the Assistant Loan Officer expressing my concerns that the rehab may not be complete in the next 30 days and asked if we could schedule the appraisal towards the end of the month. I was assured that the interest rate is locked in for 45 days and that it wouldn’t be a problem to delay the appraisal until the end of September.
The Assistant Loan Officer requested some more asset documents to ensure I had enough funds for 3 months of payments. It’s the start of Labor Day weekend and so I will send when I’m back in the office on Tuesday.
I sent the requested documents and electronically signed a slew of disclosures through Garden State Home Loans application portal. It was very quick and easy.
Received an email from Class Appraisals requesting payment to schedule the appraisal. I replied that since the rehab is not complete, that I’d like to hold off on payment and scheduling.
Received an email from Garden State Home Loans ensuring that I received the email from Class Appraisals.
Received an email from Class Appraisals that I can either pay for the appraisal and hold off on scheduling a date or cancel the appraisal and order a new one down the road. I decided to pay for the appraisal now and schedule later.
Received a call from Garden State Home Loans asking for a Letter of Explanation as to why my Year to Date Income on my pay-stub didn’t match my Gross Pay. (I received a raised a few months back which through the total off) Will send letter on Monday.
Uploaded the requested Letter of Explanation to the loan portal.
Went to pay for the appraisal and the fee was $670. Originally, I was quoted $625. I reached out to Garden State Home Loans and they replied with a formal letter saying that they would pay the difference at closing. We’re holding off on scheduling the appraisal because we are still renovating the property and want to ensure work is complete before hand.
I received this weird letter in the mail (see below) from Provident Funding Associates advising me that my application for a mortgage loan has been closed based upon my request that it be withdrawn. This was alarming because I never submitted any type of request. So I called Garden State Home Loans and they ensured me that the loan was still active and open and all is well.
That was great news BUT…
With renovations taking longer than we expected, (this seems to be a common theme lately) I asked about my options to delay closing. I was given two options:
- Increase the interest rate on the loan
- Pay a small fee to push closing back
- $450 for an extra 2 weeks
- $750 for an extra 4 weeks
I’m a “rip off the band-aid” kind of girl and so I’d rather pay a fee now than have a higher interest rate for the life of the loan. Especially considering we plan on keeping this property for many many years.
We haven’t deciding if we will push it back 2 or 4 weeks but we have some time to decide.
After a week of discussions, The Troop and I decided to push back renovations by 2 weeks and pay the $450 fee. We reached out to our Loan Officer at Garden State Home Loans.
He suggested a third option. Instead of delaying closing, we could pay a fee (between $200-$300) to expedite the appraisal process. This way we could have another week to work on renovations by pushing the appraisal back but we wouldn’t have to delay closing. We said we would think about it.
The Troop got word that he will be deployed to Puerto Rico to assist with Hurricane relief for 2 weeks. This obviously delays renovations by a lot considering he is doing most of the work. I called our loan officer to see what our options were. Since rates have went up significantly in the past few weeks, he’s unable to push closing back any further than 4 weeks without our rate increasing.
At this point, trying to close a cash out refinance while doing renovations has given us added self-induced stress. I’m learning that we should have waited until renovations were complete before beginning the process.
Our loan officer said he’ll look into other options and get back to us next week.
Today is the day that we finally decided to terminate the refinance all together. This is at no fault to the lending company what so ever.
With The Troop being deployed down to Puerto Rico to assist with Hurricane relief and being held up by rough inspections, renovations are just taking so much longer than we expected.
Instead of paying extension fees and/or risk the appraisal coming back lower than we expected, we feel it’s best to cancel the refinance, finish renovations and then begin the process again once everything is complete.
On a positive note, working with Garden State Home Loans has been such a great experience and we will definitely be reaching out to them again when we are ready to move forward.
This post will be updated frequently to reflect the progress being made.
** I’d like to point out that Garden State Home Loans have been SUPER quick and attentive on their end, and if we weren’t dealing with renovations at the time, they would have been able to close in less than 30 days. So while this time line has definitely lasted longer than that, it’s not a true reflection on how efficient Garden State Home Loans, and other lenders, are on refinances.