July 16, 2024 • 39 mins
Welcome to Loan Officer Training! In this episode, we break down the essentials of structuring a BRRRR transaction—a powerful strategy in real estate investing that stands for Buy, Rehab, Rent, Refinance, and Repeat.
Join us as we unravel the intricacies of each step in the BRRRR method. From identifying suitable properties for investment to financing the initial purchase and navigating the renovation process, we'll guide you through the critical phases that lead to success.
Don't miss out on learning how to structure a BRRRR transaction effectively and unlock the potential of this proven investment approach. Tune in and empower yourself with the tools to thrive in the dynamic world of real estate finance.
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About The Mortgage Calculator:
The Mortgage Calculator is a licensed Mortgage Lender (NMLS #2377459) that specializes in using technology to enable borrowers to access Conventional, FHA, VA, and USDA Programs, as well as over 5,000 Non-QM mortgage loan programs using alternative income documentation!
Using The Mortgage Calculator proprietary technology, borrowers can instantly price and quote thousands of mortgage loan programs in just a few clicks. The Mortgage Calculator technology also enables borrowers to instantly complete a full loan application and upload documents to our AI powered software to get qualified in just minutes!
Our team of over 350 licensed Mortgage Loan Originators can assist our customers with Conventional, FHA, VA and USDA mortgages as well as access thousands of mortgage programs using Alternative Income Documentation such as Bank Statement Mortgages, P&L Mortgages, Asset Based Mortgage Programs, No Ratio CDFI Loan Programs, DSCR Investor Mortgages, Commercial Mortgages, Fix and Flip Mortgages and thousands more!
Our Mortgage Loan Originators are trained to be loan co
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The Mortgage Calculator is a licensed Mortgage Lender (NMLS #2377459) that specializes in using technology to enable borrowers to access Conventional, FHA, VA, and USDA Programs, as well as thousands of Non-QM mortgage loan program variations using alternative income documentation!
Using The Mortgage Calculator proprietary technology, borrowers can instantly price and quote thousands of mortgage loan programs in just a few clicks. The Mortgage Calculator technology also enables borrowers to instantly complete a full loan application and upload documents to our AI powered software to get qualified in just minutes!
Our team of licensed Mortgage Loan Originators can assist our customers with Conventional, FHA, VA and USDA mortgages as
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Restream recording Jul 16, (00:00):
So, welcome everyone.
(00:01):
My name is Kyle Hiersche I'm theCOO of the Mortgage Calculator,
joined here by our salesmanager, Jose Gonzalez, and we
are a lender that specializes innon QM loans.
And what we do every Tuesday andWednesday and Thursday evening
at 7 p.
m.
Eastern is this Loan OfficerTraining Series, where we do an
in depth Training on a differentloan topic tonight is a great
(00:21):
one, which is how to structure aburr transaction, which is
something that me and, Nick arebig fans of, and that, of
course, a lot of our loanofficers and Jose are fans of
completing for clients.
Right?
So, definitely something cool.
Definitely a hot topic.
So for the loan officers outthere, especially those ones
dealing with, investors, orpeople who want to be investors,
(00:44):
just keep in mind, this isdefinitely a hot topic.
It's a hot, you know, keywordit's in all the podcasts.
So you need to be familiar withthis type of transaction, these
type of terms, and be able tohelp your clients with them and
talk to them about it.
And even, you know, you know,let people know what it means
that don't, right?
So, without further ado, let mego ahead and turn it over to
(01:05):
Jose to get into thepresentation.
Good evening, everyone, or goodafternoon, for those, those of
our attendees that are on theWest Coast.
Tonight, definitely a hot topic,right?
Tonight's presentation isbasically geared not just to our
loan officers out there, Right.
(01:25):
Real important to know how tohandle these transactions, but
to our investors that are outthere so they can know how to
structure it.
And also so they can know who toreach out to, to help them with
their structure in the mostefficient manner.
If you're a loan officer.
Like Kyle was mentioning, youdefinitely, definitely need to
(01:47):
know how to navigate thesewaters to help the investors.
And, definitely when we'retalking about sustainable, MLO
careers, keep in mind that, mostbe are, are, are, are
transactions, are two loans inone.
(02:08):
If there, if the investor isplanning on holding onto the
property as an income producingrental, which most of them do
nowadays, because the rents arejust so profitable.
So let me go ahead and get rightinto it because it's all
explained here in thepresentation.
(02:31):
Now, as always, I like to give alittle context.
As to why I feel that this topicis important.
So we all know right now, theinvestors are driving the
market, right?
There's a lot of investors outthere buying properties to rehab
them and sell them or rehab themand keep them as a, an
(02:55):
investment properties.
We also know that non QMoriginations have increased.
as a response to higher interestrates and the need to find
alternative options forborrowers to qualify and
alternative ways for borrowersto get a home.
Now the, the, the fixed fliploans are a great option for
(03:19):
borrowers to qualify.
To obtain short term financing,because these are bridge loans
with no prepayment penalties,allowing them to purchase and
rehab the property with the sameloan and not use their credit
cards for the rehab.
(03:40):
That's super important, folks,because once you start jacking
up the balances on those creditcards, The credit scores are
going to drop and then you mayhave an issue on that next loan.
You're looking to get Whetherit's another burr loan or
whether it's the end loan torefinance out of the burr.
(04:04):
We all know that low propertyinventory for sale has made
rehabbing even more profitable.
That's why we get all of thesedeals from these fix and
flippers.
Rent, rents are rising fasterthan interest rates also making
the fixed flip loans convertedto DSCR loans.
(04:25):
Extremely popular.
And as I mentioned, a Burrinvestor will need two
transactions of planning and aholding the property as a rental
property.
They're going to use the initialfixed flip loan to purchase and
rehab the property, and thenthey're going to refinance out
(04:46):
of that fixed flip loan, usuallywith a DSCR loan, because the
DSCR loan has limited.
Or no seasoning on titlerequired.
And to remind those of us outthere, what I mean by seasoning
on title, and I'm not talkingabout salt and pepper.
I'm talking about how long the,owner has been on title to the
(05:11):
property, because that's, what'sgoing to determine usually if we
can use the new market value ofthe property.
Right.
Which is going to be worth a lotmore after repairs.
Than it was when it waspurchased because the other
option if there, if seasoning isan issue is to use the purchase
price plus renovations.
(05:34):
And usually the market valuewill be higher than the purchase
price plus renovations if it's agood flip.
So real important to note there.
That's why it's, this segment ofthe market is one of the good
set niches to target so that youwill have a good multiplier
(05:55):
there on your transactions of atleast two.
And then a happy flipper willbe, we'll come back from war,
right?
So what exactly does burr standfor, right?
It stands for buy rehab, rent.
(06:15):
Right.
Refinance to recuperate yourinvestment and additional money,
additional monies, right.
The profit so that then you canrepeat the transaction by buying
another property to again, rehabit, rent it, refinance and so on
and so on.
(06:37):
Now it's real important for theinvestor as well as the loan
consultant of the investor toremember that we need to plan
for the exit strategy.
Is it going to be a true flip Isit going to be a hold where
you're going to sell theproperty once the renovations
(06:58):
are completed or is it going tobe a hold where you're going to
hold it as a rental property?
If it's going to be a hold,remember, a rental market study
is essential.
That's where you should bereaching out to your industry
partners, like your realtors,maybe the realtor that sold you
(07:19):
the property, can also provideyou, market rent, So that, you
can study the feasibility ofrefinancing out of the burr loan
into a DSCR loan.
You want to make sure is yourDSC are going to be greater than
one, less than one, a lotgreater than one, like 1.
(07:41):
where you're going to get abetter pricing, now all.
Income types are possible, butyou, you see me, honing in on
the DSCR loans because they'reusually the only option that has
zero months seasoning optionwhen you've completed
(08:03):
renovations to the property,meaning you don't have to wait
six months.
You don't have to wait 12 monthsto get the market value.
You can get it now.
As long as you can show therenovation that was done.
We have options, even lightrenovation.
We have options with zeroseasoning required.
(08:23):
Now, of course you can refinanceinto a full dog bank statement,
P and L or 10 99 option, butagain, the DSCR.
The preferred one of experiencedinvestors because it uses the
property's rental income toqualify the borrower and not the
borrower's personal income.
And like I mentioned, it's, oneof the only options out there
(08:46):
with zero months seasoningrequired on title, meaning you
can use market value instead ofpurchase price plus renovations.
If you've completed at leastsome light.
Renovation to the property.
So again, important takeawayfrom this slide plan for the
exit strategy.
(09:09):
Now, what is a fixed flip loan?
I mentioned briefly touched onit.
It is a short term bridge loandesigned to help investors
purchase and renovate aproperty, usually to sell it at
a profit, but also to facilitatethe repairs.
(09:30):
If the investor decides to keepit and refinance that of the
flip loan into a long term loanat the end, the fixed flip loan
is not a renovation loan like atwo or three K or Fannie Mae
home style, which are not bridgeloans.
The fixed flip loan, the truefixed flip loan is only for
(09:53):
investment properties.
Pre payment penalty is neverapplicable.
That's another reason why thefixed flip loans are the way to
go.
When the rehabber wants to buythe property, renovate it with
the funds from the flip loan aswell, which is an like frost,
you know, that's like thefrosting on the cake.
(10:13):
Right.
You're already getting alonewith as little as 10 percent
down to buy the property.
and loan amounts from 50, 000 to5 million.
But the key there is never aprepayment penalty and never an
early payoff default.
Now, what is an early payoffdefault?
(10:34):
That is when the borrower paysthe loan off before the early
payoff period, uh, is expired.
And that's, that can be a bigissue for mortgage loan
originators out there because,you know, If you finance what
will be a flip with a regularnon flip loan and the borrower,
(10:57):
borrower uses the money to dothe repairs and then turns
around and sells the propertythree months later, guess what?
You're gonna, that's an earlypayoff default and the, any,
earnings from that loan aregoing to have to be paid.
Returned that's the early payoffdefault clawback So definitely
(11:19):
when structuring loans for aflipper make sure that you uh
structure it With a fixed fliploan, which does not have a
prepayment penalty And it'snever subject to any early
payoff default restrictions.
And also, it's the one that'sgoing to let the flipper get in
without any consideration oftheir income, only, only gauging
(11:43):
the loan, qualifying theborrower based on the profit of
the flip, the borrower's trackrecord on doing flips.
And in most cases, but not allcases, the borrower's credit
score.
There are a few options outthere that do not consider any
credit score, only borrowerexperience and the profit in the
(12:06):
flip.
So in order to be able toproperly consult the investor,
and also in order for theinvestor to really know what
they're doing, there areinvestor terms that we all need
to familiarize ourselves with.
(12:26):
And I'm going to run themthrough, here.
We're talking about seasoning ontitle.
I already mentioned that's howlong the owner has been on
title.
Now, the best options for ourDSER loan products out there are
with six months.
But three and zero months arepossible.
(12:47):
As I mentioned, if we showrenovation, the property and
other term is recourse loan, arecourse loan is a loan where
the borrower personallyguarantees the loan.
This doesn't mean that it's aloan that does or doesn't appear
on the borrower's personalcredit.
(13:08):
It just means that the borrowerguarantees the loan personally,
and they're responsible for anydefaults on the loan.
personally.
Non recourse loan, nowconversely, means that the
borrower does not personallyguarantee the loan.
Now I will state that all ofthese fixed flip loans are
(13:31):
recourse loans, but do notappear on the borrower's
personal credit report.
So it's half and half of whatinvestors normally want.
ARV, real important phrasethere, is the after repaired
value.
In other words, that is thevalue of the property, the
(13:54):
market value of the property,after all renovations have been
completed.
The as is value is the value ofthe property in its unrepaired
state before renovations arecompleted.
The renovation budget is thetotal cost.
(14:16):
To renovate the property.
Now the renovation budget isgoing to be broken down into
soft costs, which are theexpenses associated with the
planning and development of theproject, including architectural
expenses, engineering tests, andpermits.
And you have hard costs, whichare the actual construction
(14:41):
costs of physical constructioncosts, like.
Materials.
Labor and contractor overhead.
So what are some fixed flipcosts?
Frequently asked questions,right?
These are the ones they're goingto ask you.
(15:02):
These are the ones youdefinitely need to know the
answer to.
And I briefly touched on thisfirst one.
Can I finance 100 percent of therehab?
And the answer is yes,absolutely.
We can usually finance 100percent of the rehab and up to
(15:24):
90 percent of the total.
Loan to cost of the project.
Now that 90 percent is for superexperienced investors only
probably done at least 10 flipsin the last three years or more.
And if credit is an issue,they're also going to have to
have, you know, be in that topcredit tier.
(15:45):
And total loan to cost wouldmean the purchase price.
Of the asset.
So let's say the a, the, theypurchased it for a hundred
thousand dollars.
Regardless of the asis value,sometimes the ASIS value is
higher than what they paid forit.
The, the cost would be the costof the asset and the cost of the
(16:06):
renovations.
Nothing based on the afterrepaired value or anything like
that.
This is loan to cost and 90% isthe max.
That would mean that at closing.
The borrower would need to give10 percent down, right?
10 percent down payment of theasset, whatever they're paying
(16:29):
for it.
So they're paying a hundredgrand at closing.
They got to, they got to give 10percent down and the initial
distribution would be 90, 000 tobe able to close.
And then the rest of the loanwould be the rehab portion of
the loan, which is a hundredpercent.
Of the rehab, whatever it is,and that's paid out in draws,
(16:51):
right?
As work is completed, thecontractor puts in a requisition
for the draw.
It's reviewed and the money ispaid out.
So it will be paid out insegments.
How much experience do I need?
Well, zero flip experience ispossible for a pro for a
(17:11):
borrower with good credit and aprofitable flip, right?
If it's a good flip with a highROI, you're going to be in good
shape.
Most, I would say usually thethreshold minimum ROI that
they're looking for in a flip is30%.
If there isn't at least 30percent profit in a flip, that
doesn't say they won't do it,but you're not going to get the
(17:33):
best terms.
Even if you've done 20 flips inthe last year, if it's not that
much of a profitable flip,they're not going to give you
the 90 percent total loan tocost.
But again, if you have zeroexperience, Again, that's, and
you have a profitable flip, thenyou're going to get the, you
know, you're going to get in onthe action.
(17:55):
Another common question is, do Ineed to make any payments during
the rehab?
Again, this is going to dependon the profitability of the flip
that's referred to as interestreserve.
When you can build in the,interest payments into the loan.
So it's a very profitable flip.
(18:17):
You may be able to build in agood portion of the interest
payment into the loan asinterest reserve.
How much income will you need toqualify to verify?
Well, I already mentioned this.
No personal income is required.
So that means you don't need P&Ls from the borrower.
(18:37):
You don't need tax returns.
You don't need pay stubs.
You don't need anything.
But the flip does need to beprofitable.
That's what it's going to boildown to.
That's why you need to know theas is value, purchase price,
total renovations, ARV, closingcosts, so then you can determine
the profit and hope that it's atleast a 30 percent ROI on the
(18:59):
deal.
Now here's a very common one andlisten well to the answer,
right?
Can you pre approve me for afixed flip loan purchase?
Now, the answer is not really,but we can help you size up the
deal, right?
(19:19):
Or we can help you size up yourpotential.
But remember, each flip isspecific and the profit that
we're analyzing comes from theflip.
So unless you have a propertyalready selected, For us to
review the information where,you know, the, as is value, the
purchase price, the ARV and therenovation amount and the
(19:42):
closing costs, which we canfigure the closing cost part
out.
So that, so that the ROI, thereturn on investment, the profit
on the deal can be figured out.
If you don't have the exactproperty already figured out and
have that data for us, all thatwe can really do is review your
credit and review yourexperience.
(20:03):
But the final say will depend onthe profit of the flip.
So you will need an actualproperty in the scope of the
work, renovation and the ARV andall the other components that I
mentioned, which I'm going tocover in the last slide so that
we can actually quote the dealand then let you know how much
will be lent to you, how muchwill be the loan amount, what
(20:28):
percentage and all that kind ofstuff as well as interest rates.
So it's hard to pre approveanybody.
For a, for a fixed flip, unlessyou already have an exact
property selected.
And here's a real popular one.
Can I do a refinance of myincomplete fixed purchase?
(20:50):
And the answer is absolutely.
However, it may not be acashless transaction.
Depending on the whole scenario,they may want the borrower to
put some skin in on the game.
If it's an in process flip wherebasically they're running out of
time, flips going to come up.
The expiration of the loan isgoing to come up.
(21:12):
The current lender doesn't wantto extend it.
Doesn't want to do anything.
So it may not be a cash outrefinance for the purpose of
getting money out.
It may just be a cash outrefinance for the purpose of
getting more money.
For to be able to finish theflip.
So you may not get any money inyour pocket cash out.
(21:34):
You're just going to pay off theexisting lien, cover the closing
cause, and then have additionalmoney left over that will be
distributed as draws.
Right.
So, but to break it down alittle bit more, if it's a cash
purchase.
That's fine.
That's not an incomplete flipper se, but it can be refinanced
(21:56):
via a delayed financing option.
I already mentioned in processflips can be refinanced.
You're just not going to getusually any cash out.
You may be able to getadditional monies for, for
renovations.
Maybe the scope of the workincreased a little bit.
And then very importantly, atthe end, the investor can keep
(22:18):
the property and refinance intothe end loan, usually a DSCR
loan, uh, if that's what theychoose to do.
And that's what a lot ofinvestors are doing.
A lot of the DSCR loans that wepick up as refinances I would
say not a lot, but I would say30 to 40 percent of them are
flippers that are refinancingout of the flip loan into a DSCR
(22:45):
loan because they love theproperty, they saw the rental
comparables, they know it's amoney maker.
They probably would rather keepit for a year, at least anyhow,
to get even more equity and makesome of that money back as
rental profit.
And at the same time refinanceand get some cash out to buy
another property.
So it's a win win situation ifthey keep the property, right?
(23:08):
Good rental income, they get themoney to buy another property
and they hold on to the assetand let it appreciate a little
bit more because usually after ayear it's going to be the best
option for somebody that'sbuying the property.
To get the best loan as well.
And lastly here in this lastslide, I'm sharing with our,
(23:32):
with our MLOs out there, as wellas our investors out there that
are looking to get into a fixedflip loan, what is the essential
information needed to assess andquote the fixed flip loan.
And by quote, I'm talking aboutthe rate, the cost, the loan
amount, LTV, all that goodstuff, because we're going to
(23:53):
run it through a pricer that'sgoing to let us know all of
these factors.
Now, obviously the informationgoing in, has to be valid
because an appraisal will bedone.
And the appraisals that are donefor these fixed flip loan is an
appraisal with the ARV value.
Where the appraiser has to putin the current as his value, the
(24:15):
scope of the work and the afterrepaired value, which would be
the market value of the propertyin its newly renovated
condition.
So information you need here,this is what you need to request
from the borrowers and what theborrowers need to be ready to
provide to their loanconsultant.
The name of the LLC.
or the entity that the propertyis going to be held in.
(24:38):
Fixed lip loans can never be ina personal name.
They're always going to be in anentity.
Who's the borrower name?
Because that's going to be theguarantor.
What's the borrower FICO score?
Because again, they're going tobe the guarantor.
Now, real important, as far asto be able to get the maximum
(24:59):
loan to cost.
What is the number of flips forsale in the last three years?
What is the number of flips forrent during the last three
years?
What is the number of ground upconstruction deals or ground up
construction bills in the lastthree years?
What is the name of the generalcontractor or if it's going to
(25:22):
be a self billed?
What is the exit strategy?
Sell or hold?
Really important there.
What is the purchase price?
What is the as is value?
What is the rehab budget?
Both soft and hard costs.
What is the ARV?
(25:44):
After repaired value, in otherwords, the value of the
property, the current marketvalue of the property after all
renovations are completed.
What are the estimated rents?
Especially important.
If you're planning on holdingthe property after closing,
right, we're going to becalculating a debt service
coverage ratio.
You want to make sure thatwhatever is your target loan
(26:06):
amount, when, when, if you'replanning on holding the property
and depending on the cash thatyou want to get, make sure that
the debt service coverage ratiocovers, or make sure that the
debt.
The rent covers the debt servicecoverage ratio minimum.
And that minimum we're lookingfor is at least 1.
0.
We have options where the debtservice coverage ratio is less
(26:29):
than one, but usually what'sgoing to happen is, the LTV is
either going to be lower.
Or much higher rate at a muchhigher cost.
So there are very limitedoptions at a 75 percent LTV for
a low ratio DSCR where the DSCRis 0.
(26:49):
75 to 0.
99.
And there are no options at a 75percent LTV for a no ratio DSCR
where the DSCR is less than 0.
75.
So again, that's why you reallyhave to do all this planning up
front.
And what is the propertyaddress?
What is the term requested?
Six to 24 months are the normout there.
(27:12):
Your best bet is to get at least12 months.
You don't want to have to get asix month option.
Yeah, the rate's going to be lowor a little bit lower cost, but
it's really stressful.
If you're getting close to thesix month, threshold and you're
not ready and now you got to askfor an extension.
They don't want to give it toyou.
So then you got to refinance thein process flip and you know,
(27:34):
those aren't the easiest ones todo.
And last but not least, whattype of draw type are you
requesting?
Do you want advanced draws or doyou want reimbursement?
After the work is completed.
So, very important page here.
This, this basically, summarizesalmost everything that we
(27:56):
covered in the other slides.
The terms that you have to know,the strategies and all that kind
of good stuff.
So, really important for MLOs.
If you want to be a good loanconsultant, please know what
you're getting into.
You have to be an expert.
And I would recommend you.
(28:16):
You know, learn all these, allthese phrases, all the
terminology and get out there,join some investor groups, be
active in the meetings, youknow, co network with these
investors, let them see howknowledgeable you are so that
hopefully once they feelcomfortable with you, they, they
will start referring you deals.
(28:37):
And it's like a tidal wave.
Once you get one and you delightthem with your service and
exceed their expectations, youThey're going to give you more
deals from them as well as referyou deals from their investor
buddies that they run aroundwith.
So definitely look to themortgage calculator for all of
(28:57):
your fixed flip loans, DSCRloans, and all other type of
loan types.
Let me go ahead and see if thereare any questions here in the
(29:20):
chat.
So I do just want to point out,I do just want to point out here
that, let me take that off thescreen.
Sorry about that.
So amazing programs right here.
And the burr method is anamazing way to build a real
estate portfolio.
So it's definitely something,again, that's why it's a hot
topic, right?
As I was saying, you know, your,your borrower can take the same,
(29:41):
you know, a hundred thousanddollars they have to invest,
right?
There's no way they're going tobuy 10, 20 properties.
But through the Burr method,they can buy one, rehab it, rent
it to stabilize it, refinance itto get the money back, plus then
some, and then repeat theprocess, right?
So you can do one at a time, usethe same 100, 000 down payment
(30:02):
10, 20 times in a row, using theBurr method.
So instead of just buying oneproperty or, you know, like I
said, not being able to buymultiples.
You can build an entire rental,portfolio, a little, little, you
know, I guess portfolio is theword I'm looking for.
A nice little rental portfolio,a little empire.
(30:23):
They're just using that samecapital for the down payment.
So that's why it's such apopular, concept right now.
And especially since rents areso high, like Jose was saying,
it's just an absolute, Usuallyyou're going to knock it out of
the park, right?
And when, when you do, then it'seasy to come and do it again and
again and again.
(30:43):
And as the loan officer, notonly are you a consultant with
them through that first deal,but also as, as I said, there's
the refinance on the backend,right?
The second deal.
And then there's the repeat,right?
So as loan officers out there,make sure you're familiar with
these things, make sure you'reeducating your borrowers on
these things and make sure thatyou're equipped.
to handle these type of loanswhen they come in because it's
(31:05):
not just one loan.
It's at least two and then whoknows where it can take you from
there.
You might have a client thatdoes 10, 20, 30, 40.
Absolutely amazing.
And like I also mentioned,Credit score preservation,
right?
It's not the first flipper thatI run into that's now trying to
(31:28):
cash out a property and nowtheir credit score is five 60.
And when I asked him whathappened, did you miss payment?
He says, no, I didn't misspayment.
But my credit cards are alljacked up to the max.
They're over the limit.
What are you going to do then?
At that point, they're relegatedto selling the asset because
they can't get any viablefinancing to make it worthwhile.
(31:51):
All they would really be able todo is refinance.
Maybe what they owe at a reallyhigh rate, if at all, with no
monies from the transaction tobe able to do the repeat part,
right?
It doesn't work unless you cando the repeat part.
At that point, you're just aflipper.
Selling properties and you'renot benefiting from also being
(32:12):
an investor.
And I do want to be clear too,that remember your clients can
also, you know, investors can dothis without the fix and flip
loan, right?
It doesn't actually, Jose sayingthat's the way to do it, to not
run up your credit cards, butjust be clear, especially the
beginners out there, they don'thave to do a fix and flip loan
for this method, right?
This, excuse me, this method isnot a loan, right?
(32:35):
A BRRRR.
Is a method.
So whether you buy the housecash and put cash into it and
you know what I mean?
And then refinance out of it toget your cash back or whether
you buy it with a regular loanand then put cash Into it to fix
it.
That's possible too You couldalso buy it with a regular loan
and put your credit cards intoit to fix it But as jose said
you're going to be a lot betteroff doing a fix and flip loan at
(32:57):
that point and paying whateverthe fix and flip cost is as
opposed to 25 percent onwhatever it is and ruining,
ruining the credit.
Yeah, because on, on average,somebody with good credit is
going to be able, and if it's aprofitable flip, even with
limited experience is going tobe able to finance anywhere from
(33:18):
80 to 85 percent of the purchaseprice of the asset for the
initial distribution at closingfor the closing, right?
Which means they'll give 15 to20 percent down payment.
Of that low purchase price andget a hundred percent of the
renovation financed.
(33:39):
And that's the key.
That's actually the answer tothat first question there.
So I went ahead.
Yes.
I mean, it does need to, you'realways going to need a down
payment, for the flip loan, theminimum down payment for a super
duper experienced flipper withgreat credit and a very
profitable flip is 10 percentdown of the purchase price.
(33:59):
Which is 90 percent loan to costand 100 percent of the,
renovations.
Next question here is whatcurrent rate, and does it mean?
Well, again, the current rate isall over the place, right?
There isn't one flip outlet,right?
So we're going to, we're, we'regoing to look over for the
(34:20):
lowest.
Cost and lowest rate option, butsometimes we need to go to a
conduit that does, that allowslow experience flippers with a
high loan to cost or maybe alower credit score flipper or no
credit score flipper with aprofitable flip, right?
So again, it's all over thespectrum regarding FICO score
(34:42):
requirements, but if I were totry to generalize in the
majority of the cases.
They're gonna be looking at aminimum.
Now, this is not all the cases.
I'm saying in most of the cases,but remember, we have low FICO
score options and we have noFICO score option.
But if you want to go with therule of thumb, 620, or above for
(35:04):
an experienced flipper and 660or above for a flipper with zero
experience.
And the rates could be anywherefrom, probably from the high
nines to low tens up to 13, 14,15 percent.
If it's a zero experienceflipper with no FICO score and a
(35:25):
flip that's not too profitable.
So it's each deal is specific.
Okay.
Next question here is theclosing time.
(35:45):
Okay.
We have a fixed flip optionsthat don't do an appraisal,
physically of the property.
They do a desktop, appraisal.
Obviously those are going to bequicker and those we can close
in seven to 10 days max.
We can close that option.
And, but typically the flip loancould take, 18 to 21 days at
(36:08):
least.
And remember, as, as all otherdeals, when an appraisal is
involved, if the appraiser setsyou back, that's going to delay
your closing.
And also if the title companyhas a delay due to the title
search taking longer thanexpected or the lean search or
whatever, that's going to delayyour closing.
(36:30):
So keep in mind that it's notalways about this, how quickly
can the underwriter review itand how quickly can the loan
officer put the file togetherand submit the underwriting, but
it's also the other, services ofthe loan, like the appraisal and
the title work that is alsogoing to contribute to the
(36:50):
turnaround time to close.
All right.
Last question here.
So can I use this for renovatingand sell storage?
Well, again, this is renovationfor the purpose usually of
bettering the property, addingvalue to the property.
(37:11):
If the renovation is not addingvalue, they may not, they may
not lend on it, right?
That's why, as is value,purchase price, renovation
costs, and after repaired valuesare key components to knowing if
a loan will be able to be made.
On that asset now cell storagefacilities, you know, that's a
(37:33):
commercial asset limitedofferings, but there are Fixed
flip loans for commercialproperty and another question
just came in here If I buy aflip can I do my own loan?
You can't do your own luck, youknow a teammate can do it Uh
(37:55):
kind of in a roundabout way, butyou wouldn't actually be All
right.
I don't see any other questions.
So we'll go ahead and wrap itup.
A great topic here today.
I recommend people, you can godo a lot of research.
We actually have a couple otherpresentations on birth.
You type in burner, the mortgagecalculator or whatever.
But also there's tons ofpodcasts and videos and
(38:17):
trainings and all kinds of stuffon the birth concept.
And again, it's a hot buttontopic.
With your clients and withinvestors, right?
And so it's something that youshould be aware of, be talking
to them about, and it'ssomething that people are really
interested in.
It's something that especially alot of the younger generation
are aspiring to do to buildwealth.
(38:37):
So it's something that you needto be very aware of, know how it
works and be able to do it soyou can help your clients out.
So, with that being said, thankyou everybody for tuning in and
we will be back here tomorrowwith a new topic.
So, we'll see you all tomorrowat 7 p.
m.
Eastern for the next episode ofthe Loan Officer Training Series
with
So, welcome everyone.
(00:01):
My name is Kyle Hiersche I'm theCOO of the Mortgage Calculator,
joined here by our salesmanager, Jose Gonzalez, and we
are a lender that specializes innon QM loans.
And what we do every Tuesday andWednesday and Thursday evening
at 7 p.
m.
Eastern is this Loan OfficerTraining Series, where we do an
in depth Training on a differentloan topic tonight is a great
(00:21):
one, which is how to structure aburr transaction, which is
something that me and, Nick arebig fans of, and that, of
course, a lot of our loanofficers and Jose are fans of
completing for clients.
Right?
So, definitely something cool.
Definitely a hot topic.
So for the loan officers outthere, especially those ones
dealing with, investors, orpeople who want to be investors,
(00:44):
just keep in mind, this isdefinitely a hot topic.
It's a hot, you know, keywordit's in all the podcasts.
So you need to be familiar withthis type of transaction, these
type of terms, and be able tohelp your clients with them and
talk to them about it.
And even, you know, you know,let people know what it means
that don't, right?
So, without further ado, let mego ahead and turn it over to
(01:05):
Jose to get into thepresentation.
Good evening, everyone, or goodafternoon, for those, those of
our attendees that are on theWest Coast.
Tonight, definitely a hot topic,right?
Tonight's presentation isbasically geared not just to our
loan officers out there, Right.
(01:25):
Real important to know how tohandle these transactions, but
to our investors that are outthere so they can know how to
structure it.
And also so they can know who toreach out to, to help them with
their structure in the mostefficient manner.
If you're a loan officer.
Like Kyle was mentioning, youdefinitely, definitely need to
(01:47):
know how to navigate thesewaters to help the investors.
And, definitely when we'retalking about sustainable, MLO
careers, keep in mind that, mostbe are, are, are, are
transactions, are two loans inone.
(02:08):
If there, if the investor isplanning on holding onto the
property as an income producingrental, which most of them do
nowadays, because the rents arejust so profitable.
So let me go ahead and get rightinto it because it's all
explained here in thepresentation.
(02:31):
Now, as always, I like to give alittle context.
As to why I feel that this topicis important.
So we all know right now, theinvestors are driving the
market, right?
There's a lot of investors outthere buying properties to rehab
them and sell them or rehab themand keep them as a, an
(02:55):
investment properties.
We also know that non QMoriginations have increased.
as a response to higher interestrates and the need to find
alternative options forborrowers to qualify and
alternative ways for borrowersto get a home.
Now the, the, the fixed fliploans are a great option for
(03:19):
borrowers to qualify.
To obtain short term financing,because these are bridge loans
with no prepayment penalties,allowing them to purchase and
rehab the property with the sameloan and not use their credit
cards for the rehab.
(03:40):
That's super important, folks,because once you start jacking
up the balances on those creditcards, The credit scores are
going to drop and then you mayhave an issue on that next loan.
You're looking to get Whetherit's another burr loan or
whether it's the end loan torefinance out of the burr.
(04:04):
We all know that low propertyinventory for sale has made
rehabbing even more profitable.
That's why we get all of thesedeals from these fix and
flippers.
Rent, rents are rising fasterthan interest rates also making
the fixed flip loans convertedto DSCR loans.
(04:25):
Extremely popular.
And as I mentioned, a Burrinvestor will need two
transactions of planning and aholding the property as a rental
property.
They're going to use the initialfixed flip loan to purchase and
rehab the property, and thenthey're going to refinance out
(04:46):
of that fixed flip loan, usuallywith a DSCR loan, because the
DSCR loan has limited.
Or no seasoning on titlerequired.
And to remind those of us outthere, what I mean by seasoning
on title, and I'm not talkingabout salt and pepper.
I'm talking about how long the,owner has been on title to the
(05:11):
property, because that's, what'sgoing to determine usually if we
can use the new market value ofthe property.
Right.
Which is going to be worth a lotmore after repairs.
Than it was when it waspurchased because the other
option if there, if seasoning isan issue is to use the purchase
price plus renovations.
(05:34):
And usually the market valuewill be higher than the purchase
price plus renovations if it's agood flip.
So real important to note there.
That's why it's, this segment ofthe market is one of the good
set niches to target so that youwill have a good multiplier
(05:55):
there on your transactions of atleast two.
And then a happy flipper willbe, we'll come back from war,
right?
So what exactly does burr standfor, right?
It stands for buy rehab, rent.
(06:15):
Right.
Refinance to recuperate yourinvestment and additional money,
additional monies, right.
The profit so that then you canrepeat the transaction by buying
another property to again, rehabit, rent it, refinance and so on
and so on.
(06:37):
Now it's real important for theinvestor as well as the loan
consultant of the investor toremember that we need to plan
for the exit strategy.
Is it going to be a true flip Isit going to be a hold where
you're going to sell theproperty once the renovations
(06:58):
are completed or is it going tobe a hold where you're going to
hold it as a rental property?
If it's going to be a hold,remember, a rental market study
is essential.
That's where you should bereaching out to your industry
partners, like your realtors,maybe the realtor that sold you
(07:19):
the property, can also provideyou, market rent, So that, you
can study the feasibility ofrefinancing out of the burr loan
into a DSCR loan.
You want to make sure is yourDSC are going to be greater than
one, less than one, a lotgreater than one, like 1.
(07:41):
where you're going to get abetter pricing, now all.
Income types are possible, butyou, you see me, honing in on
the DSCR loans because they'reusually the only option that has
zero months seasoning optionwhen you've completed
(08:03):
renovations to the property,meaning you don't have to wait
six months.
You don't have to wait 12 monthsto get the market value.
You can get it now.
As long as you can show therenovation that was done.
We have options, even lightrenovation.
We have options with zeroseasoning required.
(08:23):
Now, of course you can refinanceinto a full dog bank statement,
P and L or 10 99 option, butagain, the DSCR.
The preferred one of experiencedinvestors because it uses the
property's rental income toqualify the borrower and not the
borrower's personal income.
And like I mentioned, it's, oneof the only options out there
(08:46):
with zero months seasoningrequired on title, meaning you
can use market value instead ofpurchase price plus renovations.
If you've completed at leastsome light.
Renovation to the property.
So again, important takeawayfrom this slide plan for the
exit strategy.
(09:09):
Now, what is a fixed flip loan?
I mentioned briefly touched onit.
It is a short term bridge loandesigned to help investors
purchase and renovate aproperty, usually to sell it at
a profit, but also to facilitatethe repairs.
(09:30):
If the investor decides to keepit and refinance that of the
flip loan into a long term loanat the end, the fixed flip loan
is not a renovation loan like atwo or three K or Fannie Mae
home style, which are not bridgeloans.
The fixed flip loan, the truefixed flip loan is only for
(09:53):
investment properties.
Pre payment penalty is neverapplicable.
That's another reason why thefixed flip loans are the way to
go.
When the rehabber wants to buythe property, renovate it with
the funds from the flip loan aswell, which is an like frost,
you know, that's like thefrosting on the cake.
(10:13):
Right.
You're already getting alonewith as little as 10 percent
down to buy the property.
and loan amounts from 50, 000 to5 million.
But the key there is never aprepayment penalty and never an
early payoff default.
Now, what is an early payoffdefault?
(10:34):
That is when the borrower paysthe loan off before the early
payoff period, uh, is expired.
And that's, that can be a bigissue for mortgage loan
originators out there because,you know, If you finance what
will be a flip with a regularnon flip loan and the borrower,
(10:57):
borrower uses the money to dothe repairs and then turns
around and sells the propertythree months later, guess what?
You're gonna, that's an earlypayoff default and the, any,
earnings from that loan aregoing to have to be paid.
Returned that's the early payoffdefault clawback So definitely
(11:19):
when structuring loans for aflipper make sure that you uh
structure it With a fixed fliploan, which does not have a
prepayment penalty And it'snever subject to any early
payoff default restrictions.
And also, it's the one that'sgoing to let the flipper get in
without any consideration oftheir income, only, only gauging
(11:43):
the loan, qualifying theborrower based on the profit of
the flip, the borrower's trackrecord on doing flips.
And in most cases, but not allcases, the borrower's credit
score.
There are a few options outthere that do not consider any
credit score, only borrowerexperience and the profit in the
(12:06):
flip.
So in order to be able toproperly consult the investor,
and also in order for theinvestor to really know what
they're doing, there areinvestor terms that we all need
to familiarize ourselves with.
(12:26):
And I'm going to run themthrough, here.
We're talking about seasoning ontitle.
I already mentioned that's howlong the owner has been on
title.
Now, the best options for ourDSER loan products out there are
with six months.
But three and zero months arepossible.
(12:47):
As I mentioned, if we showrenovation, the property and
other term is recourse loan, arecourse loan is a loan where
the borrower personallyguarantees the loan.
This doesn't mean that it's aloan that does or doesn't appear
on the borrower's personalcredit.
(13:08):
It just means that the borrowerguarantees the loan personally,
and they're responsible for anydefaults on the loan.
personally.
Non recourse loan, nowconversely, means that the
borrower does not personallyguarantee the loan.
Now I will state that all ofthese fixed flip loans are
(13:31):
recourse loans, but do notappear on the borrower's
personal credit report.
So it's half and half of whatinvestors normally want.
ARV, real important phrasethere, is the after repaired
value.
In other words, that is thevalue of the property, the
(13:54):
market value of the property,after all renovations have been
completed.
The as is value is the value ofthe property in its unrepaired
state before renovations arecompleted.
The renovation budget is thetotal cost.
(14:16):
To renovate the property.
Now the renovation budget isgoing to be broken down into
soft costs, which are theexpenses associated with the
planning and development of theproject, including architectural
expenses, engineering tests, andpermits.
And you have hard costs, whichare the actual construction
(14:41):
costs of physical constructioncosts, like.
Materials.
Labor and contractor overhead.
So what are some fixed flipcosts?
Frequently asked questions,right?
These are the ones they're goingto ask you.
(15:02):
These are the ones youdefinitely need to know the
answer to.
And I briefly touched on thisfirst one.
Can I finance 100 percent of therehab?
And the answer is yes,absolutely.
We can usually finance 100percent of the rehab and up to
(15:24):
90 percent of the total.
Loan to cost of the project.
Now that 90 percent is for superexperienced investors only
probably done at least 10 flipsin the last three years or more.
And if credit is an issue,they're also going to have to
have, you know, be in that topcredit tier.
(15:45):
And total loan to cost wouldmean the purchase price.
Of the asset.
So let's say the a, the, theypurchased it for a hundred
thousand dollars.
Regardless of the asis value,sometimes the ASIS value is
higher than what they paid forit.
The, the cost would be the costof the asset and the cost of the
(16:06):
renovations.
Nothing based on the afterrepaired value or anything like
that.
This is loan to cost and 90% isthe max.
That would mean that at closing.
The borrower would need to give10 percent down, right?
10 percent down payment of theasset, whatever they're paying
(16:29):
for it.
So they're paying a hundredgrand at closing.
They got to, they got to give 10percent down and the initial
distribution would be 90, 000 tobe able to close.
And then the rest of the loanwould be the rehab portion of
the loan, which is a hundredpercent.
Of the rehab, whatever it is,and that's paid out in draws,
(16:51):
right?
As work is completed, thecontractor puts in a requisition
for the draw.
It's reviewed and the money ispaid out.
So it will be paid out insegments.
How much experience do I need?
Well, zero flip experience ispossible for a pro for a
(17:11):
borrower with good credit and aprofitable flip, right?
If it's a good flip with a highROI, you're going to be in good
shape.
Most, I would say usually thethreshold minimum ROI that
they're looking for in a flip is30%.
If there isn't at least 30percent profit in a flip, that
doesn't say they won't do it,but you're not going to get the
(17:33):
best terms.
Even if you've done 20 flips inthe last year, if it's not that
much of a profitable flip,they're not going to give you
the 90 percent total loan tocost.
But again, if you have zeroexperience, Again, that's, and
you have a profitable flip, thenyou're going to get the, you
know, you're going to get in onthe action.
(17:55):
Another common question is, do Ineed to make any payments during
the rehab?
Again, this is going to dependon the profitability of the flip
that's referred to as interestreserve.
When you can build in the,interest payments into the loan.
So it's a very profitable flip.
(18:17):
You may be able to build in agood portion of the interest
payment into the loan asinterest reserve.
How much income will you need toqualify to verify?
Well, I already mentioned this.
No personal income is required.
So that means you don't need P&Ls from the borrower.
(18:37):
You don't need tax returns.
You don't need pay stubs.
You don't need anything.
But the flip does need to beprofitable.
That's what it's going to boildown to.
That's why you need to know theas is value, purchase price,
total renovations, ARV, closingcosts, so then you can determine
the profit and hope that it's atleast a 30 percent ROI on the
(18:59):
deal.
Now here's a very common one andlisten well to the answer,
right?
Can you pre approve me for afixed flip loan purchase?
Now, the answer is not really,but we can help you size up the
deal, right?
(19:19):
Or we can help you size up yourpotential.
But remember, each flip isspecific and the profit that
we're analyzing comes from theflip.
So unless you have a propertyalready selected, For us to
review the information where,you know, the, as is value, the
purchase price, the ARV and therenovation amount and the
(19:42):
closing costs, which we canfigure the closing cost part
out.
So that, so that the ROI, thereturn on investment, the profit
on the deal can be figured out.
If you don't have the exactproperty already figured out and
have that data for us, all thatwe can really do is review your
credit and review yourexperience.
(20:03):
But the final say will depend onthe profit of the flip.
So you will need an actualproperty in the scope of the
work, renovation and the ARV andall the other components that I
mentioned, which I'm going tocover in the last slide so that
we can actually quote the dealand then let you know how much
will be lent to you, how muchwill be the loan amount, what
(20:28):
percentage and all that kind ofstuff as well as interest rates.
So it's hard to pre approveanybody.
For a, for a fixed flip, unlessyou already have an exact
property selected.
And here's a real popular one.
Can I do a refinance of myincomplete fixed purchase?
(20:50):
And the answer is absolutely.
However, it may not be acashless transaction.
Depending on the whole scenario,they may want the borrower to
put some skin in on the game.
If it's an in process flip wherebasically they're running out of
time, flips going to come up.
The expiration of the loan isgoing to come up.
(21:12):
The current lender doesn't wantto extend it.
Doesn't want to do anything.
So it may not be a cash outrefinance for the purpose of
getting money out.
It may just be a cash outrefinance for the purpose of
getting more money.
For to be able to finish theflip.
So you may not get any money inyour pocket cash out.
(21:34):
You're just going to pay off theexisting lien, cover the closing
cause, and then have additionalmoney left over that will be
distributed as draws.
Right.
So, but to break it down alittle bit more, if it's a cash
purchase.
That's fine.
That's not an incomplete flipper se, but it can be refinanced
(21:56):
via a delayed financing option.
I already mentioned in processflips can be refinanced.
You're just not going to getusually any cash out.
You may be able to getadditional monies for, for
renovations.
Maybe the scope of the workincreased a little bit.
And then very importantly, atthe end, the investor can keep
(22:18):
the property and refinance intothe end loan, usually a DSCR
loan, uh, if that's what theychoose to do.
And that's what a lot ofinvestors are doing.
A lot of the DSCR loans that wepick up as refinances I would
say not a lot, but I would say30 to 40 percent of them are
flippers that are refinancingout of the flip loan into a DSCR
(22:45):
loan because they love theproperty, they saw the rental
comparables, they know it's amoney maker.
They probably would rather keepit for a year, at least anyhow,
to get even more equity and makesome of that money back as
rental profit.
And at the same time refinanceand get some cash out to buy
another property.
So it's a win win situation ifthey keep the property, right?
(23:08):
Good rental income, they get themoney to buy another property
and they hold on to the assetand let it appreciate a little
bit more because usually after ayear it's going to be the best
option for somebody that'sbuying the property.
To get the best loan as well.
And lastly here in this lastslide, I'm sharing with our,
(23:32):
with our MLOs out there, as wellas our investors out there that
are looking to get into a fixedflip loan, what is the essential
information needed to assess andquote the fixed flip loan.
And by quote, I'm talking aboutthe rate, the cost, the loan
amount, LTV, all that goodstuff, because we're going to
(23:53):
run it through a pricer that'sgoing to let us know all of
these factors.
Now, obviously the informationgoing in, has to be valid
because an appraisal will bedone.
And the appraisals that are donefor these fixed flip loan is an
appraisal with the ARV value.
Where the appraiser has to putin the current as his value, the
(24:15):
scope of the work and the afterrepaired value, which would be
the market value of the propertyin its newly renovated
condition.
So information you need here,this is what you need to request
from the borrowers and what theborrowers need to be ready to
provide to their loanconsultant.
The name of the LLC.
or the entity that the propertyis going to be held in.
(24:38):
Fixed lip loans can never be ina personal name.
They're always going to be in anentity.
Who's the borrower name?
Because that's going to be theguarantor.
What's the borrower FICO score?
Because again, they're going tobe the guarantor.
Now, real important, as far asto be able to get the maximum
(24:59):
loan to cost.
What is the number of flips forsale in the last three years?
What is the number of flips forrent during the last three
years?
What is the number of ground upconstruction deals or ground up
construction bills in the lastthree years?
What is the name of the generalcontractor or if it's going to
(25:22):
be a self billed?
What is the exit strategy?
Sell or hold?
Really important there.
What is the purchase price?
What is the as is value?
What is the rehab budget?
Both soft and hard costs.
What is the ARV?
(25:44):
After repaired value, in otherwords, the value of the
property, the current marketvalue of the property after all
renovations are completed.
What are the estimated rents?
Especially important.
If you're planning on holdingthe property after closing,
right, we're going to becalculating a debt service
coverage ratio.
You want to make sure thatwhatever is your target loan
(26:06):
amount, when, when, if you'replanning on holding the property
and depending on the cash thatyou want to get, make sure that
the debt service coverage ratiocovers, or make sure that the
debt.
The rent covers the debt servicecoverage ratio minimum.
And that minimum we're lookingfor is at least 1.
0.
We have options where the debtservice coverage ratio is less
(26:29):
than one, but usually what'sgoing to happen is, the LTV is
either going to be lower.
Or much higher rate at a muchhigher cost.
So there are very limitedoptions at a 75 percent LTV for
a low ratio DSCR where the DSCRis 0.
(26:49):
75 to 0.
99.
And there are no options at a 75percent LTV for a no ratio DSCR
where the DSCR is less than 0.
75.
So again, that's why you reallyhave to do all this planning up
front.
And what is the propertyaddress?
What is the term requested?
Six to 24 months are the normout there.
(27:12):
Your best bet is to get at least12 months.
You don't want to have to get asix month option.
Yeah, the rate's going to be lowor a little bit lower cost, but
it's really stressful.
If you're getting close to thesix month, threshold and you're
not ready and now you got to askfor an extension.
They don't want to give it toyou.
So then you got to refinance thein process flip and you know,
(27:34):
those aren't the easiest ones todo.
And last but not least, whattype of draw type are you
requesting?
Do you want advanced draws or doyou want reimbursement?
After the work is completed.
So, very important page here.
This, this basically, summarizesalmost everything that we
(27:56):
covered in the other slides.
The terms that you have to know,the strategies and all that kind
of good stuff.
So, really important for MLOs.
If you want to be a good loanconsultant, please know what
you're getting into.
You have to be an expert.
And I would recommend you.
(28:16):
You know, learn all these, allthese phrases, all the
terminology and get out there,join some investor groups, be
active in the meetings, youknow, co network with these
investors, let them see howknowledgeable you are so that
hopefully once they feelcomfortable with you, they, they
will start referring you deals.
(28:37):
And it's like a tidal wave.
Once you get one and you delightthem with your service and
exceed their expectations, youThey're going to give you more
deals from them as well as referyou deals from their investor
buddies that they run aroundwith.
So definitely look to themortgage calculator for all of
(28:57):
your fixed flip loans, DSCRloans, and all other type of
loan types.
Let me go ahead and see if thereare any questions here in the
(29:20):
chat.
So I do just want to point out,I do just want to point out here
that, let me take that off thescreen.
Sorry about that.
So amazing programs right here.
And the burr method is anamazing way to build a real
estate portfolio.
So it's definitely something,again, that's why it's a hot
topic, right?
As I was saying, you know, your,your borrower can take the same,
(29:41):
you know, a hundred thousanddollars they have to invest,
right?
There's no way they're going tobuy 10, 20 properties.
But through the Burr method,they can buy one, rehab it, rent
it to stabilize it, refinance itto get the money back, plus then
some, and then repeat theprocess, right?
So you can do one at a time, usethe same 100, 000 down payment
(30:02):
10, 20 times in a row, using theBurr method.
So instead of just buying oneproperty or, you know, like I
said, not being able to buymultiples.
You can build an entire rental,portfolio, a little, little, you
know, I guess portfolio is theword I'm looking for.
A nice little rental portfolio,a little empire.
(30:23):
They're just using that samecapital for the down payment.
So that's why it's such apopular, concept right now.
And especially since rents areso high, like Jose was saying,
it's just an absolute, Usuallyyou're going to knock it out of
the park, right?
And when, when you do, then it'seasy to come and do it again and
again and again.
(30:43):
And as the loan officer, notonly are you a consultant with
them through that first deal,but also as, as I said, there's
the refinance on the backend,right?
The second deal.
And then there's the repeat,right?
So as loan officers out there,make sure you're familiar with
these things, make sure you'reeducating your borrowers on
these things and make sure thatyou're equipped.
to handle these type of loanswhen they come in because it's
(31:05):
not just one loan.
It's at least two and then whoknows where it can take you from
there.
You might have a client thatdoes 10, 20, 30, 40.
Absolutely amazing.
And like I also mentioned,Credit score preservation,
right?
It's not the first flipper thatI run into that's now trying to
(31:28):
cash out a property and nowtheir credit score is five 60.
And when I asked him whathappened, did you miss payment?
He says, no, I didn't misspayment.
But my credit cards are alljacked up to the max.
They're over the limit.
What are you going to do then?
At that point, they're relegatedto selling the asset because
they can't get any viablefinancing to make it worthwhile.
(31:51):
All they would really be able todo is refinance.
Maybe what they owe at a reallyhigh rate, if at all, with no
monies from the transaction tobe able to do the repeat part,
right?
It doesn't work unless you cando the repeat part.
At that point, you're just aflipper.
Selling properties and you'renot benefiting from also being
(32:12):
an investor.
And I do want to be clear too,that remember your clients can
also, you know, investors can dothis without the fix and flip
loan, right?
It doesn't actually, Jose sayingthat's the way to do it, to not
run up your credit cards, butjust be clear, especially the
beginners out there, they don'thave to do a fix and flip loan
for this method, right?
This, excuse me, this method isnot a loan, right?
(32:35):
A BRRRR.
Is a method.
So whether you buy the housecash and put cash into it and
you know what I mean?
And then refinance out of it toget your cash back or whether
you buy it with a regular loanand then put cash Into it to fix
it.
That's possible too You couldalso buy it with a regular loan
and put your credit cards intoit to fix it But as jose said
you're going to be a lot betteroff doing a fix and flip loan at
(32:57):
that point and paying whateverthe fix and flip cost is as
opposed to 25 percent onwhatever it is and ruining,
ruining the credit.
Yeah, because on, on average,somebody with good credit is
going to be able, and if it's aprofitable flip, even with
limited experience is going tobe able to finance anywhere from
(33:18):
80 to 85 percent of the purchaseprice of the asset for the
initial distribution at closingfor the closing, right?
Which means they'll give 15 to20 percent down payment.
Of that low purchase price andget a hundred percent of the
renovation financed.
(33:39):
And that's the key.
That's actually the answer tothat first question there.
So I went ahead.
Yes.
I mean, it does need to, you'realways going to need a down
payment, for the flip loan, theminimum down payment for a super
duper experienced flipper withgreat credit and a very
profitable flip is 10 percentdown of the purchase price.
(33:59):
Which is 90 percent loan to costand 100 percent of the,
renovations.
Next question here is whatcurrent rate, and does it mean?
Well, again, the current rate isall over the place, right?
There isn't one flip outlet,right?
So we're going to, we're, we'regoing to look over for the
(34:20):
lowest.
Cost and lowest rate option, butsometimes we need to go to a
conduit that does, that allowslow experience flippers with a
high loan to cost or maybe alower credit score flipper or no
credit score flipper with aprofitable flip, right?
So again, it's all over thespectrum regarding FICO score
(34:42):
requirements, but if I were totry to generalize in the
majority of the cases.
They're gonna be looking at aminimum.
Now, this is not all the cases.
I'm saying in most of the cases,but remember, we have low FICO
score options and we have noFICO score option.
But if you want to go with therule of thumb, 620, or above for
(35:04):
an experienced flipper and 660or above for a flipper with zero
experience.
And the rates could be anywherefrom, probably from the high
nines to low tens up to 13, 14,15 percent.
If it's a zero experienceflipper with no FICO score and a
(35:25):
flip that's not too profitable.
So it's each deal is specific.
Okay.
Next question here is theclosing time.
(35:45):
Okay.
We have a fixed flip optionsthat don't do an appraisal,
physically of the property.
They do a desktop, appraisal.
Obviously those are going to bequicker and those we can close
in seven to 10 days max.
We can close that option.
And, but typically the flip loancould take, 18 to 21 days at
(36:08):
least.
And remember, as, as all otherdeals, when an appraisal is
involved, if the appraiser setsyou back, that's going to delay
your closing.
And also if the title companyhas a delay due to the title
search taking longer thanexpected or the lean search or
whatever, that's going to delayyour closing.
(36:30):
So keep in mind that it's notalways about this, how quickly
can the underwriter review itand how quickly can the loan
officer put the file togetherand submit the underwriting, but
it's also the other, services ofthe loan, like the appraisal and
the title work that is alsogoing to contribute to the
(36:50):
turnaround time to close.
All right.
Last question here.
So can I use this for renovatingand sell storage?
Well, again, this is renovationfor the purpose usually of
bettering the property, addingvalue to the property.
(37:11):
If the renovation is not addingvalue, they may not, they may
not lend on it, right?
That's why, as is value,purchase price, renovation
costs, and after repaired valuesare key components to knowing if
a loan will be able to be made.
On that asset now cell storagefacilities, you know, that's a
(37:33):
commercial asset limitedofferings, but there are Fixed
flip loans for commercialproperty and another question
just came in here If I buy aflip can I do my own loan?
You can't do your own luck, youknow a teammate can do it Uh
(37:55):
kind of in a roundabout way, butyou wouldn't actually be All
right.
I don't see any other questions.
So we'll go ahead and wrap itup.
A great topic here today.
I recommend people, you can godo a lot of research.
We actually have a couple otherpresentations on birth.
You type in burner, the mortgagecalculator or whatever.
But also there's tons ofpodcasts and videos and
(38:17):
trainings and all kinds of stuffon the birth concept.
And again, it's a hot buttontopic.
With your clients and withinvestors, right?
And so it's something that youshould be aware of, be talking
to them about, and it'ssomething that people are really
interested in.
It's something that especially alot of the younger generation
are aspiring to do to buildwealth.
(38:37):
So it's something that you needto be very aware of, know how it
works and be able to do it soyou can help your clients out.
So, with that being said, thankyou everybody for tuning in and
we will be back here tomorrowwith a new topic.
So, we'll see you all tomorrowat 7 p.
m.
Eastern for the next episode ofthe Loan Officer Training Series
with
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