Thread by @RobinSimonESC

Real Estate Investing #TipTuesday
Get a steal of a deal - scoop up something way undervalued? Maybe a grand residence in a state of disrepair picked up at an estate sale? An off-market listing with a desperate seller? Don't Forget to do THIS ⬇️⬇️⬇️

Tip: Make sure to document the CONDITION property and get an independent report on VALUE. That means, EVEN if you secure the purchase, spend the extra time and $ to run comps and ideally get a BPO or even appraisal. You want rock solid documentation for the true value

But Why? Is this just a tip for your vanity and to make you feel super smart for getting a great price? Or so you can proudly type in your value into mint or your net worth calculator and see the number go up?

No, Its for a much more important reason ⬇️

The BRRRR method (Buy➡️Rehab➡️Rent➡️Refinance➡️Repeat) is an increasingly popular wealth building strategy. Basically, when you buy that undervalued property & fix it up, instead of flipping for a one-time profit, you rent and refi - cashing out based on the property's new value

The catch? Your lender is going to need to be mindful and conservative of the value of the property when looking to cash you out. If the lender sees the value jump dramatically, well in excess of your purchase price + rehab costs in a short amount of time - big problem

For example, say you bought a SFR for $1M at an estate sale, put in $150k of rehab, and 10 months later the property is rented out, cash flowing and valued at $2M. Forced appreciation is the RE investor's bread and butter, but $850k (85%) value jump in 10 months raises eyebrows

In this example, the lender is likely to get skittish on the value jump and walk. How to prevent this from happening?

Well, what if despite paying $1M to buy, you got a BPO (Broker Price Opinion) AT THE TIME that said it was actually worth $1.5M, with great comps to back it up

In this case, the lender could see that despite the your purchase cost, the progression was more likely $1.5M in value, with $150k rehab ➡️ $2M value with forced appreciation and market appreciation over time = much more reasonable.

Congratulations, now you can do your cash-out refinance, lock in long-term low-rate financing and recoup your capital to continue building your portfolio.

If you are a BRRRR investor, use this #tip to ensure your refinances execute smoothly on your best buys!

That's a wrap!

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