Cashout Refinance For Beginners | BRRRR Method Deep Dive

my name is sam and i'm a real estate investor i own a house buying company that flipped 252 houses in 2021 i also own a 40 million rental portfolio that i've been able to buy without using any of my own money so i eat breathe and sleep real estate i talk about the burs method all the time it stands for buy rehab rent refinance and scale and it is how i have built massive wealth in a short period of time without using any of my own money but the most complicated step of that process is that refinance step it's the most complicated step in that process i'm gonna give you three tips so that when you refinance your properties you're gonna get all your money back and number three is a secret tip that not many people know and not many people do when they're utilizing the burr's method simply put the burs method is a way to buy rental properties without using any of your own money and the key to that is that refinance step that refinance step allows you to pay off your short-term lenders and get into long-term low rate financing so you can buy it and own it all without using any of your own money i own apartment complexes single-family rentals and storage facilities all with this method so it's powerful stay tuned to the end so you can hear maisie's joke of the day and also i'm going to explain to you why debt to income ratio does not matter at all when you're dealing with the burs method and doing it the right way because a lot of people think i don't make enough money to borrow more money it doesn't matter if you're doing it the way i'm going to tell you in the next 10 seconds i'm going to describe the burs method up to the refinance you buy a property at a discount that's distressed using somebody else's money you fix it up and get it ready using that same person's money then you get the property rented guess what that person who lent you the money to buy it and fix it up did not do it for free you have to pay them back plus interest that's where the refinance step comes into play the refinance step is an 80 cash out refinance small local banks which we'll get into here in a minute these banks they will lend you up to 80 of the value of a property most people think i have to put 20 down on my rental property so that a bank will lend me the money that's not the case the bank doesn't care about that 20 they don't even usually take that 20 they just want you to have at least 20 equity in the property either you putting cash into it or bringing them a deal at below market value which is what the burs method is which allows you to not use any of your own money and it's a cashier's check they hand you a cashier's check for up to 80 of what the property's worth then you take that cashier's check and you pay back your initial lender that one who lent you the money to purchase that distressed property and fix it up you give them their money back plus interest with that 80 cash out refinance check the bank didn't just give you that check that's a mortgage now and you pay that over 25 30 years at a very low interest rate so then you don't have to actually come out of pocket once you own it so that's kind of how it works in a nutshell let's go over a couple quick examples of the refinance and then let's go over those three tips let's say your property's worth three hundred thousand dollars and appraises for three hundred thousand dollars a bank will literally write you a check for up to eighty percent of that or two hundred twenty five thousand dollars so assuming you bought a property and fix it up for less than two hundred twenty five thousand dollars the bank will give you that check for 225 you take and pay off the initial lender plus interest a question a lot of people have is what if it doesn't appraise for enough to pay back my initial lender plus interest and have to come out of pocket while that is a possibility these next three steps will make it not an option if you're still watching this video and you have not hit that like button do that now please i would appreciate it it helps the channel it helps get this information out to more people and it just makes me feel good and it can make you feel good because that confetti pops around that thumbs up once you hit it number one run extremely conservative numbers when you're looking at purchasing a property a lot of people get emotional they get drawn up especially in their first couple deals and they really really want to make a deal work and they let a motion take over the numbers and you cannot do that especially on your first couple deals so what do i mean by run conservative numbers i mean if you think the property is going to be worth 250 000 once it's fixed up because you saw other fixed up properties that have sold in that area that sold for around that price that's okay to think that but don't run your numbers on that run your numbers at 230 or maybe 240 just be conservative on what your property is going to be worth or what you think it's going to be worth you will be happy you did now maybe you won't buy as many properties that's okay if you think it needs a 40 000 rehab put 45 or 50 000 in the rehab what you're doing is you're building buffers for when things probably will go wrong especially on your first few deals so if the property is really worth 250 and you run it at 240 and it really needs 40 but you run it at 50 000 rehab that gives you 20 000 to screw up or to have something unforeseen go wrong or to take longer on the rehab whatever it is just be conservative your future self will thank you that takes discipline that takes getting emotion out of it but it is extremely important i can't tell you how many times i've seen people push that arv they say it's going to be worth 260 when it's really worth 250. they know the rehab's 40 thousand dollars but they put in 30 thousand dollars because they think that they can cut corners and make it work be conservative your future self will thank you number two make sure to go to small local banks i talked about this a little bit earlier but do not go to your big box banks your bank of america wells fargo commerce bank those banks don't want anything to do with these type of loans i'm going to explain why here in a second but you need to go to these small local community banks like first state bank of st charles or this county bank there's these small little community banks there's usually maybe three to ten branches they're in big cities they're on the outskirts of big cities they're in small towns they are everywhere and they are in business to lend to real estate investors like you and me they are not in business to do thousands of residential loans they are not in business to have billions of depository accounts those are how bank of america stays a business that makes a crap ton of money they take your loan and they sell it on the secondary market to fannie mae or freddie maxwell they have all these rules and regulations and boxes they have to check so they don't want to deal with investment properties they don't want to deal with distressed properties they don't want to deal with rental properties they have billions of dollars in depository accounts that they make a little spread on that are in their bank that they lend out and they also deal with residential mortgages and just sell them off and make a little money these small local banks don't have that luxury so they want to do business with you no they don't want to do business with you they have to do business with you or people like you to stay in business so that's how it works that's when banks were decentralized you know what 30 40 years ago this is kind of one of those things that happened these small local banks have their own rules they have their own laws of course they can't break any federal law they have way more flexibility than these big banks because it's the owner you're talking to it's a person it's not some huge corporate publicly traded company with a million ceos all making 10 million dollars a year it's a small local bank it's a community focused bank that is focused in the community that lives and works in the community and also like i said they don't sell their mortgages off they don't have all these government rules and regulations to sell them to fannie mae or freddie mac they hold them in-house so they have a lot of flipping flexibility on what they can do i've been blown away by what small local banks have done for me after i've started to develop relationship with them number three and this is kind of a pro tip and something that not a lot of people do when you take your property to a small local bank you're gonna buy it using somebody else's money you're gonna fix it up and then you're going to get it rented and then you're going to call the small local bank and say hey i have this property rented i have it fixed up i am ready to do an 80 cash out refinance and they will say okay we're going to send out a third party appraiser the appraiser is going to tell us the market value of the property that's how banks do it they're not in the business to tell you the value of the property so they hire a third-party appraiser to go out and say here's the value of the property the bank says awesome now we're going to give you a loan for 80 percent of that value so what they do is they give you a loan for that 80 that you go ahead and take and pay off people and sometimes you can keep some money it's usually tax free or it's always tax free because it's debt so anyways they give you that check so what you do to try to ensure that the property is going to appraise for what you need to appraise for is you meet the appraiser out there yes this takes time you might have to call off work or call a half day or call in sick if you have a job whatever it is meet the appraiser out at the property you're going to put a name to the face they're going to see you they're going to meet you they're going to talk to you they're going to ask you questions and you're going to give them a little packet and in that packet it's going to be everything you did to the property how much money you put into it what you think it's worth along with some comparable sales now are they going to use those sales maybe probably not actually however they are going to see that and see those numbers and you're going to tell them what you think it's worth and what you have in it and why you need what you need mr mrs appraiser you know i bought this property for fifty thousand i put you know thirty thousand into it and then here's why here's everything i did do it here's the comps that show that it's worth a hundred thousand so i really need this eighty thousand dollars so i can pay off my initial lenders you know get them paid off so i don't have to come out of pocket at all because you know you can say i don't have the money to come out of pocket you can take that approach or you can just simply give them the packet and kind of just talk about the deal regardless the fact that you're telling them what you did do it you're telling them what you need for it you're telling them why you need it and then you're meeting them in person shaking their hand goes a long way they're going to try not to be biased and they're usually pretty good about it but the fact that they've met you and talked to you and that you're a nice charming lady or gentleman that will be in the back of their mind when they're giving that final appraised value to the bank every single time i have met the appraiser at a property i have got the appraised value that i've needed and most of the time i was able to pull a little bit of money out almost every single time i have not met the appraiser out the property it's came in right where i need to be or slightly less usually not a ton less but sometimes slightly less because they don't want to put their neck out there and give a inflated value or even give market value if they don't have to it's just easier on them to not you know kind of push the market and show these high appraised numbers and push the market up so the fact that they're meeting you they're willing to probably stretch that number a little bit or not stretch it maybe just be more realistic with it but if they don't see you and talk to you they're probably going to do the bare minimum and give that lower appraised value so meet them and you will probably get what you need don't meet them you might get what you need but you might not all right i'm going to tell you amazing joke of the day going to pull it off my phone here and then i'm going to tell you why debt to income doesn't really matter when it comes to this type of investing so don't worry if you don't make a ton of money i'm in 25 million worth of debt i do well for myself but my debt to income ratio would not qualify me but that doesn't really matter it comes to investment properties [Music] if april showers bring may flowers what do mayflowers bring pilgrims get it you can use like corny low muted laughter or like a golf clap okay so here's why debt to income does not matter debt to income is based for residential loans based on how much income you make when you're dealing with investment properties you're dealing with these small local banks and you're dealing with good debt and you're dealing with what did i say investment properties not a mortgage or a car loan or something that doesn't produce income banks know that this property produces income so instead of dti or debt to income they look at debt service coverage ratio or dscr for simplicity purposes that basically just means the income or cash flow that that property brings in through rent is enough to cover the debt so if the debt on this property is 500 the bank only cares that you're making a certain percentage above that so you're paying them they'll look at your personal credit score they'll look at your personal income but they're not going to care if you're making 50 grand or 500 grand if you're making money on the side and the property that you're buying more than enough covers the debt that is going to be on that property then they're going to be okay with it so they look at the property and the cash flow that it produces much more than they look at your personal income and what you make so i really focus on the refinance part of the burs method but if you want to see an entire burs deal before and after pictures of me in a property showing you the rehab showing you the refinance showing you how it all works and cash flow check out this video where i talk about and am in a real life example house and a real burs case study see you on the next one

Channel: SamFasterFreedom

Views: 7,265

Keywords: investing in real estate, real estate investor, real estate investing 2022, real estate market 2022, investing in real estate with no money and no credit, investing in real estate 2022, real estate investing for beginners 2022, real estate investing for beginners usa, rental property, real estate investing for beginners course, cash out refinance to buy investment property, investment property loans, real estate investing for beginners with no money, rental property investing 101

Id: 7aj_srmWP2E

Length: 12min 46sec (766 seconds)

Published: Thu May 12 2022