Remodel is complete, you have a tenant, now what?

When you secure financing with hard money loans you need an exit strategy. Even if you plan to sell the property, sometimes it may take longer to sell, you do not get the price you expect or the market changes. The BRRR strategy is a good tactic from the start or a great backup plan. 

BRRR stands for Buy, Renovate, Rent, & Refinance.  Using this investing method you can start with one purchase, rinse and repeat over and over again and build a nice rental portfolio in just a few years.  This article will focus on the last R, refinance.   

Since hard money loans are short term and interest only, once you have a tenant or tenants in place you want a long-term loan to create cash flow and appreciation.  There are a few sources for refinancing your hard money loan. Each have their pros and cons.   

Rental Investment private loan.  

Funded by hedge funds and private investors, these are typically easier to attain and quicker to close than other options.  Your hard money lender might broker these loans or be able to refer you someone.  Most only require a certain credit score and LTV and no documentation.  They will either require an appraisal or a valuation from a real estate broker called a BPO. The interest rates might be 1-2 points higher than community banks and have either a 5 to 7-year ARM or a 30 year fixed option.  They normally have a pre-payment penalty. 

Commercial loan from a community bank or credit union.  

These are called mini-perm loans.  The reason is the terms are locked in for usually 5 years and then require a renewal or to be paid off.  The community banks have more requirements than the private loans but less than a government backed loan.  They are originated and serviced in-house within the bank.  They are amortized from 10 to 20 years, sometimes 25 years.  They do require an appraisal and it is a full documentation loan.  Therefore, you need to show them tax returns and financial statements for underwriting.  These loans are approved by the loan committee of the bank.   They can take 30-60 days depending on the size of the loan, the appraisal, the bank's requirements, and the workload of the loan officer.  The interest rates are typically 0.5-1.5 points higher than government backed loans.  

Equity Line of Credit

This is not a well-known strategy but with discipline can be remarkably effective and save you a lot in closing costs and interest over time.  These loans can be secured from certain small banks. Although all banks probably have an equity line of credit product the bankers may not understand your strategy.  This loan can be for your personal residence or an investment property.  The basic idea is you aggressively pay down the principal on this loan when you receive rental income and pay your expenses out of the line of credit account.  For more information go to www.replaceyourmortgage.com 

Government backed mortgage  

This is a loan procured by a mortgage broker like a broker you might have worked with for your primary residence. These loans have the most requirements from the borrower and the strictest guidelines.  The interest rates and terms are as a rule better than the other options.  The common terms are amortized at 15 or 30 year fixed with other products as well. They require an escrow account to be funded to pay for property taxes, insurance and HOA fees. The loan process can take 45-60 days.  Multiple departments usually in different offices and cities are working on a step by step process.  These loans are originated by your loan officer's company then sold to a loan servicing company.   

Going through the refinance process yourself you will learn which type of loan is best for your situation. The goal once you have a written lease with a tenant is to refinance quickly with good terms so you can recoup your original cash invested to find another deal and create wealth through rental properties.  Refinancing is also beneficial to your hard money lender so they can reinvest their funds with you as well.  Working with your hard money lender should be a partnership, not just a transaction.  A win-win solution will lead to success.