The Third “R” in “BRRRR”: 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.
BRRRR is an acronym for a popular investment strategy that stands for:
- Buy
- Rehab
- Rent
- Refinance
- Repeat
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 educational.
*This is our second attempt at refinancing. At the bottom of this post, you’ll find documentation of our first attempt which we chose to terminate due to personal situations. None-the-less, it’s still packed with great information so make sure you venture down there.
Now, onto our second attempt!
January 31st – February 5th
I reached out to Garden State Home Loans, the company we were going to refinance through during our first attempt, as well as researched other lenders in the area. This period is also the time I was slapped in the face by the increased mortgage interest rates. A few months back, I was quoted 4.125% and now we’re looking at high 4s low 5s!
February 8th
I met with a lender at 1st Colonial Bank who was recommended by a friend to discuss my options and talk real estate. He ran my credit, looked into interest rates and gave me a loose quote of what they could offer.
February 13th
Negotiated rates a bit and decided to move froward with 1st Colonial Bank with a cash-out refinance 30 fixed at 4.875%. At first, I was NOT okay with this interest rate as it’s what I have with my current mortgage. But rates are continually increasing and cashing out makes sense for our goals moving forward so we decided it was the best move for us.
Requested documents were:
- 2 months worth of statements for checking/savings/retirement accounts
- Evidence of property insurance
- Mortgage statement
- 2 months of pay stubs
- W2s from 2016 and 2017
- $400 check for appraisal
February 14th
Received application in the mail. Completed and mailed it back the following day.
February 21st
Reached out to 1st Colonial Bank about the status of the application. Was notified that they have not received it yet.
February 22nd
1st Colonial Bank received the application
February 26th
Received a call from South Jersey Appraisal Services to schedule a time to do the appraisal. Scheduled for Wednesday, February 28th.
February 28th
The appraiser came, walked around the property for about twenty minutes, took some notes and left. Now we wait.
Since we’re not pulling out our entire investment, we’re not so much worried about the property appraising high for the refinance, but we are anxious to see where we sit with this investment. We’ve put so much hard work into this property, we want to see how much value we actually added.
Fingers crossed!
March 8th
Application has been approved!
Received an email saying my file was complete so we started discussing a closing date and settled on March 15th. Now we wait patiently.
March 13th
Received a copy of the closing disclosure from the lending company. After further examination, realized that the interest rate DECREASED.
Only by .1% but hey, that’s ten bucks a month!
The quoted interest rate was 4.875% and the closing rate will be 4.75%. Score!
I also received a call from my original mortgage lender asking if they can try to be the terms of the refinance so I’d stay with them. I entertained the offer and shared with them some details of the deal such as the closing costs and interest rate. They said they couldn’t beat it and wished me well. I was a little nervous about this call at first. What if they could beat it? I was so far into the process with 1st Colonial. Fortunately, I was reassured that I was getting the best rate in today’s market with 1st Colonial.
March 15th
CLOSING DAY! I met with the lender and a representative from the title company at 8:30AM. After a few signatures here and many initials there, we were done! In total it took about twenty minutes. A lot less time than it did to close the first time around. I walked out of there with a copy of all of the documents and the appraisal, but not the cash-back check. Which I was a little bummed about.
They typically disburse the cash-back funds 4 days after closing and so I will receive a check in the mail early next week.
So that’s it! We finally completed the BRRR strategy.
The entire process took 35 days since our first meeting with 1st Colonial and exactly one month (28 days) since we submitted our application. Can’t ask for a smoother process.
Our original plan was to use the cash-out funds as a downpayment on our next investment property but in typical newbie fashion, we went over on our renovations and so the majority of this money will be used to pay off our 0% interest credit cards and an outstanding balance with our electrician.
Regardless, we’re excited to be able to say we’re done with this project. We’re comfortably living here, our tenants are moved it, renovations are done, and we can now enjoy the space.
Here’s to our first foray into real estate investing!
*First Attempt*
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.
August 29th
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
August 30th
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.
September 1st
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.
September 5th
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.
September 6th
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.
September 8th
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.
September 11th
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.
September 20th
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.
September 27th
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.
October 5th
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.
October 18th
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.
** 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.
