On the show today we talk… BRRRR Financing Strategies with Nghi Le of Certain Lending!
Show notes for BRRRR Financing Strategies with Nghi Le of Certain Lending!
The Vantastic Life is…
– is in Enumclaw WA.
Nghi, tell us how you landed at Certain Lending & a brief summary of your background?
It was by chance. I was doing deals and seeing what other lenders could do. But I was finding that there wasn’t a great product for me. They just didn’t get it.
Then I came across Certain Lending thanks to Leka.
We saw that we had the same vision and goals, and wanted to changed the lending landscape for investors.
Are you based out of SF?
Yes, but I would say that a 2nd head quarters is Seattle.
Let’s jump into it…
BRRRR is …
Well, most people buy rentals with 20-25% cash down. And you ability to acquire properties is very slow. But millennial want to do everything fast.
What if you didn’t have to come up with a new down payment every time….
BURRRR is: Buy – rehab – rent – refinance – repeat
You want to buy it, fix it up, get it rent ready, rent it, refinance it, then take the refinance money to do it again.
People who use BRRRR care about 2 things..
What the deal will be worth at the end and how much money they can get back.
What is the ROI that people are looking for with BRRRR’s?
It depends… what is you your goal? Cash flow… Better rents…
I would say any double digit returns you can get (cash on cash) is good. With BRRRR’s you should be able to get up to 50%.
And you’re going to get all your mortgage paid for by the tenants.
You’re forcing appreciation. The goal of BRRRR is to minimize down payment.
Most of this talk with be about conventional loans.
There are 3 types of refinances.
Rate / term / cash out
Rate/term means to pay off a loan. You could get up to 2% cash out. There is no seasoning, you could do this anytime. But should wait until it was stabilized. You can use the income from the rent to qualify for the refinance. Generally better except that you don’t get cash out.
Cash out means to cash out :-). Requires seasoning. Lenders view as more risky. They don’t care if there’s a loan on the property.
You can usually get a higher loan on single family than small multi family.
Basically a cash out but with no seasoning. You don’t have to wait 6 months to get cash back. There can be NO loan on the property. You could use funds from a HELOC on another property, refinance, rinse and repeat. You can’t cash out more than your cost on the deal. You can finance anything that you put on the HUD. You could put your rehab on the HUD. But we don’t recommend paying your contractor all of the funds upfront. You can get around this by having your property manager pay the contractor in installments.
Are there any restrictions on what you can use the cash for?
No, but the underwriter will want to know what the cash out is for.
I treat my lender as another set of eyes. Another security blanket.
What we are always looking at with the BRRRR is the ARV.
You want to do this with the end in mind. You want to know that you will be able to refi before you buy any BRRRR.
I’ve done all of these.
Get gap financing. You already have a 1st lender, then you find someone else that can give you the down payment in 2nd position. You are in for no money out of pocket. You need to know, you have to do it all at the same time.
Get your main lender to finance all of your costs (purchase and rehab). Many people prefer this because it’s less complicated. If you ask your lender about 100% financing, most will say no, but most don’t, and they are generally pretty expensive. You could also cross collateralize. The lender would take a lean against another one of your properties. Which makes them feel comfortable with the 100%.
Down Payment Reserve / Cash Pledge
You are putting a down payment but the lender writes the loan for 100% of your costs. I recommend this one. It’s just a matter of how the down payment is kept. It’s essentially a 100% loan to the end financing. The terms and availability of this option will be much more available.
They are counting your down payment as a loan cost?
Technically you did do a down payment, but it’s works for someone that wants to do a rate and term refinance.
These are all the conventional hacks to doing the BRRRR.
Conventional loans are made for owner occupied properties. A lot of loan officers don’t know these rules. It’s much easier to do a loan for a owner occ than an investor.
The other way you could get around this is to not use a conventional lender.
This is a product that we have at Certain Lending.
Everyone wants to know what your rate is… the best rate is on conventional because it’s backed by the government. On a 30 year you’ll get 3.5-5.5%, and it veries.
Ours starts at 4.5-7%. On average it’s the mid 5’s. It depends on credit and LTV.
Conventional loans don’t have a pre-payment penalty but your loan officer will get penalized if you pay it off prior to 6 months.
We have a no – 5 year pre payment penalty. If you go up to a 5 year pre payment penalty you’ll get a better rate.
If it’s a refi we’ll go up to 75% cash out.
We don’t care. No seasoning for cash out as long as it’s leased and stabilized.
We go up to 80% of value.
Conventional loans are hard to qualify for if you don’t have a W2 job. Lenders don’t want to do loans that aren’t W2. They take too much time.
The more properties that you own the more paperwork that you’re going to do.
An asset based lender only cares about the subject property. You could be unemployed.
We could do an interest only loan to get your costs down.
You can’t scale with conventional loans
They won’t lend to entities and you can’t have more than 10 loans.
What if you have a partnership and one of the partners doesn’t have good credit?
Usually they will take the lower credit score.
Closing Time Frames
The conventional lenders are busy and investor loans are not a priority. I’m trying to get a conventional loan and have been waiting 6 months so far. And every month I have to submit all new documents.
Cash Flow Properties Out of State
Most lenders don’t want to do small loans. Their dollars per hour goes down. Generally $100k is a good bar.
Everything has gone up since COVID. If you’re getting a loan in the 600’s credit score… it will be hard to do that.
You must find a lender in the state that you want to do the loan in.
Generally it takes time to find an investor friendly lender.
Why do you have to lend to entities and not individuals?
We are doing business lending, and because of that we want to see a business entity. And it will protect you more.
That’s it, that’s all I’ve got!
As you can see, Nghi knows what he’s talking about!
You can reach Nghi at:
Every Friday by weekly posted on the Seattle Investors Club Facebook Group
You can come to our online meetup every Thursday at 11:30am PST by going to https://meetup.com/seattleinvestorsclub.
You can also send us videos that we will post to our YouTube page of tips and tricks that you’ve made! Send them to [email protected] for review. Funny stuff too!
Nghi’s YouTube: The Loanly Real Estate Life on YouTube https://www.youtube.com/channel/UCPGNOsJ-UxRHL4PNmbPHn_A