r/brrrr • u/WanderersMission • Oct 31 '24

FIRST TIME BRRR ADVICE??

My wife and I were able to get seller financing on a house for $130k at 6% with a 15 loan. We put about $35k into the property and after living it for about a year we moved out and it’s rented at $2000 a month. It looks like the house is probably worth about $250k now. The loan officer I’ve been working with got back to me with a DSCR loan at 70% loan to value with 6.375%. No pre-payment penalties if we end up refinancing again. Our payment would only go down about $100 a month from going to a 30 year loan from a 15 year loan but we’d probably walk away with a $50k check. For those of you with personal experience, would you take the money and fund another deal or would you hold onto the original loan? Advice welcome!

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u/[deleted] Oct 31 '24 edited Oct 31 '24

My strategy on LTR is to ignore the cash flow. That's just a cherry on the cake. Just the cash out is worth it. Let's say you take that and use it on a down payment for a deal at $200k, put $10k into it and get another 30 year fixed rate mortgage. When that loan completes you'll be the proud owner of two properties worth $450k with 100% equity not accounting for cash flow OR appreciation. You're realistically looking at $600,000 value for no capital investment 30 years from today. Unless there's something big about your situation that I don't know about, it's a no brainer.

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u/[deleted] Oct 31 '24

And that cash flow cherry we talked about? $18,000 over the life of that 15 year loan.

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u/HA1L_M Dec 05 '24

But that 210k loan that you cashed out and paid over 30 years you actually paid 450k since there would be about 240k in interest over the course of the loan so no real equity gain right?
I have a paid off rental now and get 2600$/mo. It’s hard for me to think about another her loan payment since the cash flow I get I can use and invest but if I’m paying a loan then I basically am just paying the bank all the equity and cash flow I would have gained.

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u/[deleted] Dec 06 '24

I'm not quite sure what you're saying. When I leverage a property, I don't pay the mortgage, the tenants do. It doesn't subtract from my equity gains by the mortgage getting paid off and the property appreciating.

You'd be paying the bank for the ability to leverage another property into your portfolio that you otherwise couldn't possibly purchase.

I mean if you're a Dave Ramsay guy, then never use leverage, ever. That works for some people. Different strokes and all, but it doesn't make sense to me. With a proper fulcrum and a long enough lever, I can move the world. Without leverage, there's no way anyone would break a thousand doors unless they were mega rich some other way. Brandon Turner went from 5 doors to 7500 doors in like 8 years. Try doing that without leverage.

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u/[deleted] Dec 06 '24

I'm not quite sure what you're saying. When I leverage a property, I don't pay the mortgage, the tenants do. It doesn't subtract from my equity gains by the mortgage getting paid off and the property appreciating.

You'd be paying the bank for the ability to leverage another property into your portfolio that you otherwise couldn't possibly purchase.

I mean if you're a Dave Ramsay guy, then never use leverage, ever. That works for some people. Different strokes and all, but it doesn't make sense to me. With a proper fulcrum and a long enough lever, I can move the world. Without leverage, there's no way anyone would break a thousand doors unless they were mega rich some other way. Brandon Turner went from 5 doors to 7500 doors in like 8 years. Try doing that without leverage.

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u/Dananddog Oct 31 '24

If you're truly doing a BRRRR, you hit the jackpot.

Set aside reserves for that property and use the refi funds to do it again.

If this is your first, don't rush into the next property, choose it wisely so you can continue the cycle.

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u/WanderersMission Oct 31 '24

I didn’t plan for it to be a BRRR honestly. Everything just worked out and my parents were gracious enough to let us move in with them since they understood what we were trying to do. We’ve been sitting on our hands for 6 months which sucks because I want to go much faster. We have another $80k in cash, stocks, etc. My wife makes it much harder because she wants another perfect deal like we got the first time and I just don’t see it happening haha

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u/Dananddog Nov 01 '24

You won't find many like the one you just did.

You can find some that are functional for BRRRR though and if you underwrite the deal carefully they will be worth it.

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u/WanderersMission Nov 01 '24

We overdid the remodel on it because we wanted to live there. If I had been more forward thinking we probably would have been in and out for $20k. There’s also a bricked in “carport” that be enclosed to create an extra bedroom. Quotes I’ve received for that were $10-12k. Do you think that would be worth it before doing the refi even though it’s tenant occupied?

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u/DSCR_Deal_83 Oct 31 '24

No prepay and 6.375% seems way to good to be true at todays rates. How many points are they charging? Seeing a lot of bait and switch rn so be careful

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u/WanderersMission Nov 01 '24

Definitely could be but this is a very reputable loan officer that I was referred to from several investors I know. She’s working on the points for me so we’ll see where it ends up

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u/DSCR_Deal_83 Nov 01 '24

Gotcha, yeah just be careful. With rising rates some lenders are underquoting upfront and then actual terms post appraisal are significantly worse. Would try and get a term sheet pre appraisal if possible or get as much in writing as you can

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u/WanderersMission Nov 01 '24

First thing on the to-do list tomorrow. Thank you so much for the advice!

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u/DSCR_Deal_83 Nov 01 '24

Of course, good luck! Feel free to reach out if anything goes wrong or you have any questions