What refinance strategies do you have in place? Are you making it easy for bankers to lend money to you? The Good Stewards dive into the key of scaling your business quickly, the refinance component. If you don't run this like a business you're going to sell to one of us at a discount later.
If you don't run this like a business you're going to sell to one of us at a discount later. This episode discusses the most lucrative aspect of the BRRRR process, refinancing.
This is your opportunity to pull your cash out and move onto the next investment:
2:30: The BRRRR method is all about leverage, but it's all about letting somebody else foot the bill for you.
Commercial Loans on Residential Properties:
4:14: The ones that are going to be most open to you are the ones who have a specific loan product that they're willing to offer. Remember if you're a homeowner, they're looking to you as a homeowner is getting a loan. But when you're borrowing on a commercial loan, they're looking to the property.
7:14: We are usually looking for a lender that's going to loan at least 75% of the loan based on the appraised value. What’s the seasoning process, how long do you have to own the property before they will turn around and loan you based on the appraised value?
Establishing A Relationship:
11:48: you really want to earn the banker’s trust make them turn them into your advocate when they go to speak to the underwriter or anyone else going to the committee approving the loan. Earn that trust by coming very prepared with all business documents, property portfolio, rent roll, etc.
15:45: Accounting is critical to help establish a strong relationship position.
20:00: You usually only get one shot with one bank at an appraisal. Meet appraisers at your property, don’t let your tenant potentially tell them all the things wrong with the property.
22:13: Are you going to share your actual numbers? Sometimes it’s important to note you spent $100k in a rehab. That said, no lender really wants to be on the edge of a 1:1 percent debt service coverage ratio if your rents are breaking even.
Other financial strategies :
27:35: Get market rent for your rentals. The minimum Ryan is looking for is a 1.25% rent to cost ratio and we hold to that rule really pretty hard because it translates pretty nicely to covering the debt service coverage ratio.
Key Takeaways from Hosts:
32:49: If you have the option to spend the time to complete a 30k flip and pay taxes, why not try and get a really good BRRRR deal for the same 30k and avoid taxes?
Connect with the Good Stewards:
Andrew: Really walk through your business with them and make sure that. Not only did they understand it, but they understand that you understand it and that you are, you know what you're doing, you know your strategy, you know, you looking for, you know, you're the numbers for your business, you know, all those things you have them really at hand and you're not like, oh, I don't know what I'm doing kind of thing.
[00:00:20] Intro: Welcome to the good Steward podcast. The only podcast dedicated to season Real Estate Investors who want to maximize the cashflow potential in their business. We are Buy and Hold investors with a thousand plus properties in markets across the u.s. To bring an Insider's view into the nitty-gritty details of real estate investing. If you are looking to develop the mindset teams and systems that can dramatically build your real estate business and network. You're in the right place.
[00:00:53] Ryan: Welcome to this episode of the good stewards podcast. I'm Ryan dossey.
[00:00:57] Amanda: I'm Amanda Perkins.
[00:00:59] Bill: I'm Bill Syrios.
[00:01:00] Andrew: I'm Andrew Syrios.
[00:01:01] Amanda: We have a great episode for you today. We are going to talk about the third R in the BRRRR strategy refinance and how that relates to your. Yes, it's probably not the most fun part of the whole process, but it can be the most lucrative for you.
[00:01:18] It can have an opportunity for you to pull cash out of your properties and move on to your next adventure and repeat the process all over. Before we dive in, I just wanted to remind you to subscribe to our podcast and look us up at thegoodstewards.com.
[00:01:37] Okay, once you've gotten your BRRRR deal and you've rehabbed it and rented it it's time for you to make contact with a lending institution and refinance. Hopefully at a lower interest rate than you already had. In some cases, maybe you bought your property 100% with your own cash and this is an opportunity for you to tap into that cash. So you can use it again, or maybe you have a private lender at a higher interest rate. And this is an opportunity for you to lower your interest rate and maybe start paying on an amortized loan so that you're paying down your loan balance or your resident is paying down your loan balance, and it's critical to the process because you don't want to be paying higher interest rates or using all of your own cash to fund your real estate Empire.
[00:02:29] Ryan: For any of the Dave Ramsey fans, I think the point there is somebody else paying off your debt for you. The BRRRR method is all about leverage, but it's all about letting somebody else foot the bill for you.
[00:02:43] Amanda: One of the things with this process is that for somebody who's going to be building a larger real estate portfolio, identifying a potential lender is critical. The reason why I say that is, you're probably not going to be going to the Bank of Americas in the u.s. Banks of the world to get these types of loans that you're looking for.
[00:03:05] Especially if you have Residential Properties, which we have a lot of with a commercial property easy, you can go get a commercial loan. With a residential property, you're going to be looking for a commercial loan on that residential property and there's very specific banks that make those kinds of loans and you have to identify them and build relationships with them.
[00:03:29] Bill you have pretty good expertise in this area. Can you kind of talk us through like the things when you're looking for a lending partner with us what you're looking for and how you initiate those kinds of interactions?
[00:03:46] Bill: Well. You know when you think about banks you wonder which ones are going to be open to refinance with you and it's definitely the case that it's the local and Regional banks that you want to be targeting because as mentioned before the large US Banks in the Bank of America's they have such stringent requirements for Lending that you probably just want to avoid using them. The ones that are going to be most open to you are the ones who have a specific loan product that they're willing to offer and that loan product is residential properties with commercial loans on them. So that's that's kind of a niche market in The Lending world. Not every Bank offers that kind of product and that's the kind that you'll be looking for. You may have to go through a number of banks to find a bank that is willing to loan. On Residential Properties with commercial loans, but that's the kind of Bank you're looking for.
[00:04:51] Ryan: I think the interesting thing with these is that a lot of people think you're capped to 10 and that's if you're looking at like Fannie Freddie type refinances or mortgages that will be sold on the secondary market.
[00:05:05] This is typically a product that's offered by like local community banks that are actually carrying the paper. They're holding the debt in house as part of their portfolio and there's actually not a there's not a cap on these. There's not a cap on how many they'll do most banks have like a legal lending limit of like a max that they can loan to one entity. But you're talking typically in the millions of dollars depending on your credit worthiness not something like ten notes.
[00:05:31] Bill: I think the first thing that you want to do is to find a bank partner and I would think of it in those terms some some entities some institution that's going to partner with you and and be and give you access really to funds. Now they want to loan just as much as you want to be loaned to and part of the issue is keeping your credit where it needs to be. You need to be a credit-worthy borrower and one of the things are going to look at it even as your credit score even though they're mostly looking at the property itself because they're commercial lenders.
[00:06:07] Remember if you're a homeowner, they're looking to you as a homeowner is getting a loan. But when you're borrowing on a commercial loan, they're looking to the property. So does the property is it worthy of the loan? That is does it have the cash flow to sustain the mortgage and the other expenses that come with it. But alongside with that, they are going to look at your credit. They're going to look at you and you want to have a package that you give them right off the bat that's going to impress them and includes your background, your experience in real estate, what you've done before. You're going to want to meet with them and talk that through even having a relationship with one Banker in the institution that you're targeting to bring them out on site show them around a little bit take the lunch that kind of thing. You're building a relationship with a partner that partner happens to be a lender.
[00:07:01] Amanda: Well in some of the things that you're going to want to ask them, you know, what kinds of loan to values are they offering? You know, like some commercial loans, maybe they're only going to give you 60%, maybe that works great for you. We are usually looking for a lender that's going to loan at least 75% of the loan based on the appraised value and not only
[00:07:21] Ryan: not off the cost, they try to sneak that in there.
[00:07:24] Amanda: Right. Another thing that's critical critical. What is their seasoning requirement and what that means is how long do you have to own the property before they will turn around and loan you based on the appraised value and we've had things change it on us, you know, like we go along and it's you know, we got it rehabbed, we got it rented, it's been 3 months, we can get the appraisal, get the loan we wanted. Boom, boom, boom. A year later, we you know have quite a few loans with them and they're like, oh well our seasoning is three years. Well I don't know how many people that's going to work for for you to wait to own the property for three years before you're able to tap into that cash back. So, you know, you want to be asking those questions.
[00:08:09] Bill: And one thing that is a little bit invisible to you when you're dealing with a bank you are dealing with representative who is definitely on your side because they likely are going to earn a commission based on the the amount of loans that they have go through in the dollar amounts. But then there's a person that they have to own up to and that's the underwriter and the bank that has certain criteria and they almost get paid for turning stuff down.
[00:08:33] So there is a little bit of odds with that person, but they have to justify this loan to that person and so do you to get that loan through. So you don't really know who that is and that person can change and their criteria can change. As Amanda said, we were really surprised one time going along just swimmingly with a bank and all sudden pops up. You have to have a three-year seasoning. What are you talking about? That is never been part of the equation, but I think it was a new underwriter came to town and that's what we're dealing with. Or our limit of how much money we were borrowing from that particular bank went over a certain threshold that we didn't really realize and at that threshold there were more criteria that we were under as a result of going through that dollar amount.
[00:09:19] Amanda: Another thing is banks are big on relationships. So, you know, it's going to be something they're going to want your accounts, and you can only have your accounts with so many banks. We actually have a accounts with too many banks, but that's because we have a lot of lending partners we but you can't run your operations out of everything. So at the beginning of it, you know, maybe you're courting a bank to figure out where you're going to set with you know, where you're going to set your stuff up with. Maybe you're going to have to change that down the line. You have to be open to that because that might be a requirement that the bank wants to keep your business.
[00:09:52] Ryan: It's kind of like a constant shuffling to of one is one is interested in their appetite decreases and you know, sometimes they pretend they have an appetite till they get your money and then it's like we really don't so yeah, you do have to be willing to kind of move around your main operational accounts to who's interested in working with you kind of at that time. I don't think for most people they're going to run into that as fast as we have but at the volume and scale that stewardship is a whole moves at, you've got to have different options because they say yesterday they say no tomorrow.
[00:10:27] Andrew: I would jump in real quick there about operation account. I would try not to move your operational account. That's just a nightmare to change all your credit cards and stuff like that. If possible why we open Reserve accounts for you want to keep liquidity on hand if you can if you can do so, so if you have any extra funds or what
[00:10:43] Amanda: property tax reserves that kind of stuff
[00:10:45] Andrew: reserves and property taxes, things like that. And banks, when you say we talk about wanting banking partnership, well, they want a partnership to because they want your deposits. And so you want to find ways to give them deposit accounts, but without moving your operating account because if it comes to that it comes to that but it's it's quite arduous indeed to do that.
[00:11:05] Bill: And you shuffled accounts across the board so often.
[00:11:11]Andrew: We've never moved our operating accounts once.
[00:11:13] Bill: No, but I mean you've shuffled from One bank to the next when it comes to refinancing various properties.
[00:11:18] Amanda: Well, Andrew, did you want to talk a little bit kind of about so you got a bank to say yes, like they're interested in looking at what you have to look at. What are you presenting to them to get the underwriter to say yes to you as a person and as an organization to close that loan?
[00:11:35] Andrew: Well, I think the key point you see the lender that you're talking to will be on your side more or less because they get a commission but you need to convince them more than just they get a commission that's not going to be sufficient. So you really want to earn their trust make them turn them into your advocate. Turn them into somebody will actually go to bat for you when talking to the underwriter. You know, to speak with anyone going to committee where the loan eventually gets approved or shut down. And so you want to be it's very important to sit them down in your office if you have it or go out to lunch with them. Really walk through your business with them and make sure that not only did they understand it, but they understand that you understand it and that you know, what you're doing, you know your strategy, you know what you're looking for, you know, you're the numbers for your business, you know, all those things you have them really at hand and you're not like, oh, I don't know what I'm doing kind of thing.
[00:12:28] And then I try to really kind of blow their socks off so to speak with the loan submission. I usually break it down into, I put all of our, all of our company documents from our tax returns to our to our profit and loss statements. We have a fairly complicated company to they're several branches try to put all that stuff in there kind of in other company category just so we have all of our company documents all of our business documents. Then I take the portfolio. I have pictures of all the properties, the rent roll like we usually bring several properties that a time you bring one at a time, but we usually go from 5 to 10. And so we have the rent roll. The aged receivables report the profit and loss statement the balance sheets the in and I happen to have the loan request and also perform my put together an estimate of how the portfolio will perform. And then we also have just our personal documents or these are just three separate folders are pretty like personal financials, our resumes all that kind of thing along with our business plan. And so I have this very large document submission and I either upload it through Dropbox or Google Docs or I give them a USB drive with it. And so instead of asking like most banks will just be constantly asking for documents back in the day, which I send them one email after another because especially with ours we have very complicated business has a lot of moving parts, it would just be ten emails something like that. And this way it's all laid out. I have a start here document where I just kind of run through every major point of the company and the portfolio the key numbers and this sort of, I think it just wanted makes it impressive to have it all there.
[00:14:12] It's makes it much more simple for them is less back and forth because they have all those documents and it really just kind of proves your worthiness in terms of like, you know what you're doing. And I think that's you know banking is a numbers business but really down at is a relationship business and it's not just your relationship with the lender. But it's the lender's relationship with the committee and with the underwriter and their ability, in the more impressed they are, the more obvious that will be when they go to go to bat for you. So we really try to over almost overly impressed them on the front side. And I think that works his way to the back side and we've had a very good very good batting average since we've started doing this.
[00:14:49] Ryan: I think a problem you run into with most of these guys is most of the other people that are approaching them for loans, the extent of their data is like: I have a house, It rents for 1,200 a month. I'd like a hundred grand. So when we come in with like here's everything you could ever want to know to where when we get those back and forth emails and Andrew's talking about we can say, you know, respectfully obviously, hey that's already in the folder we've submitted to you, you know, here's where it's located. They're kind of like wow, these guys have all their ducks in the row, you know, they understand our accounting is so robust that we can say during construction, here's what we paid in utility costs over the course of these three months.
[00:15:29] Most investors It's kind of like they don't really know what they have. So by putting in kind of this front end work and tracking your data as you go, as Andrew put it, you really are blowing their socks off because normally they're dealing with people that don't really know how to run a business.
[00:15:45] Amanda: And maybe don't understand the importance of accounting because it's not it's not the most fun part of the business but it is so critically necessary. Pay somebody to do it if you can't do it yourself
[00:15:58] Ryan: As Amanda taught me when I came on board. It's not something we do and then log. We log it before we do it, right? So when you're when you're looking at anything accounting-wise you're going to document it before you do it. Not, oh, I'll try to remember to do that.
[00:16:15] Andrew: Another another key point I'd make is I whenever I'm talking to a new bank and a complete noob wouldn't be able to do this, but you won't be able to find a way to do it as source is to basically name-drop. You want to anchor things which is a psychological term for basically dropping a concept which will be the anchor for which they wish they see the entire conversation. So I just name drop every bank we've done business with and like the big ones and like oh, yeah, we just got a loan for $500,000 from you know, XYZ bank or whatever. I'll give a shout out to some of our banks just got a $500,000 loan from Tricentury Bank and Cornerstone Bank and so or Bank 21, so like dropping those one after another. So everybody else is giving us why are you giving us money?
[00:17:01] So you've gotten one loan going from one bank and maybe they've gotten tight or something like that, you know, make sure to name drop them when you're talking to the next bank. I mean I could be even for for a home loan. We got our, you know, got our house financed from you know, whatever bank and now we're looking for more investment properties. Somebody else has lent to us, so you should too. I mean that no one would ever admit that that affects them or psychologically or anything like that, but it does.
[00:17:26] Bill: There are some other National Banks that loan money we're talking about the Lima Ones of the world. What is it
[00:17:37] Amanda: Blackstone? Is that still a thing
[00:17:38] Andrew: I think B2R dropped off like A10 Capital, Lima one. There's a handful of these types of companies,
[00:17:44] Bill: right? Those are options for you. They are slightly more expensive and some cases quite a bit more expensive. The reason that banks, community and regional banks are the cheapest money out there and that's really what it's all about as cost of funds you want to drive your cost of funds as low as possible in the end so you can be a long-term hold investor. And the reason that their cost of funds are the cheapest is because they're getting their money from deposits from folks that we want to get to and say why don't you become private lenders but haven't heard that word yet. And so they have their money in very low interest-bearing accounts at local banks. Well, that is the the money that they're drawing out of the funds that they're using for these kinds of loans that allows them to give us the best Interest rate available out there.
[00:18:36] Ryan: I think the kind of Lima One group those kinds of groups the space they fill is if you're having a hard time with Community Banks or they can be a little bit less stringent and their approval. Which for a lot of buy-and-hold investors, especially people that are doing wholesaling or flipping and kind of you know, don't necessarily have those two years of tax returns some of those kind of more expensive lenders may provide an option, but as Bill mentioned, in the long run you're going to pay a lot more money and interest over the amortization schedule.
[00:19:08] I think we should probably get into talking about appraisals because this is kind of the key point to this right that
[00:19:16] Amanda: The key point. This is the critical part of how much are you going to get out of your property.
[00:19:21] Ryan: This is where we find out if you actually did your job or not, right? So on the appraisal piece, you know, we've estimated what we think the after repair value is on the property. We've hopefully been able to stay on budget. We've ideally been able to lease for what we projected. But this is kind of the piece where we find out how good of a job you did or didn't do. And that's what does an appraiser say it's actually worth doesn't matter if you think comps are at $200,000 if it appraises at $120k, it appraises at $120k.
[00:19:55] So there's and I
[00:19:56] Amanda: And I just wanna interject one thing too. You usually only get one shot with one bank at an appraisal. So just want to throw that out there.
[00:20:06] Ryan: Yeah, it's kind of this is the piece that's a little scary and I think a little intimidating for most new investors. Because this is where you find out like are you able to pay off your private lender? You going to have to bring cash to closing? You gonna be able to pay off hard money if that's what you used? You know, you going to get stuck with dead Equity or you actually going to get a tax-free payday out of this?
[00:20:28] So I've found on the appraisal note you kind of want to do their job for them. The easier you can make this and it's kind of like a there's a fine line. It's almost like dancing. You don't want to tell them you're doing their job for them. You more just want to make it very easy and you can almost kind of tell when you're doing this if you're pushing too far or not. So for starters meet them at your properties for your appraisals. A lot of people are just like oh, yeah, you know call the tenant. Hey the appraisers going to be there on Monday at 3:00, you know, be sure to let him in. Well, what if that resident decides to tell your appraiser every complaint he has about the property that he has shared with you, right? Oh, yeah, it leaks, you know place smells weird, I don't know if anything's up to code. Your appraisals going down.
[00:21:20] Amanda: Hopefully that's not the case with your property, but.
[00:21:24] Ryan: Hopefully, but as you'll find a lot of the times residents can kind of exaggerated the problems with properties as well. We had a maintenance call recently. The guy said the place was flooded and there was literally like four drops of water on the floor. So, you know something you want to be aware of. But we had one recently with the appraiser showed up and I kid you not, at the top of his page, he had zestimate with the zestimate of the property written that's where he was starting. So we'll show up, you have comps pulled for the property off the MLS, copy of the scope of work everything you did to it and you can really, you know, kind of walk them through. And yeah, we did this this and that to really kind of boost that property in their mind.
[00:22:09] Amanda: And the this is probably, I'm going to jump in, where you would kind of decide like, are you going to share your actual numbers because in some cases maybe it's worth a lot more than you put into it or are you just going to outline all the stuff that you did and that's kind of like a decision that you're going to make from time to time, you know, like sometimes it's going to be important to highlight that you just put $100,000 of rehab into this property, but other times it's maybe put $20,000 but you're hoping you increase by the value by $100,000.
[00:22:39] Ryan: Yeah, or if you got a really really good deal. It's kind of where you don't want to show your cards. They only put three grand into it. Right so
[00:22:46] Bill: Often times the appraiser is going to have what the previous purchase price was. So they're starting out with a kind of an anchor as Andrew mentioned before and you have to sometimes blow that anchor up. And one of the things is that there are comparing your newly rehabbed property with a dump that's down the street, might be the same square footage the same number of bedrooms and bathrooms, but it's nowhere near the kind of quality that your property is in. So somehow you've got to win them over to think think differently about the way they're valuing your your place
[00:23:23] Andrew: Some of it is just making them like you. I mean not not being like fake or whatever, but just just engaging them in casual conversation. A lot of it is you know, I don't think that I think there's a very very limited ability for you to, basically, you don't want them to screw it up is the main thing by a comparing it to bad comps or thinking that you're a horrible person at your properties in disrepair. So you're there to make them feel you're a good guy and make sure that they don't have any misinterpretation like know this property is not flooding. This is a minor maintenance issue. You shouldn't compare it to that property because it's a foreclosure and that one is, you know, the foundation walls of a fallen over and it's about to collapse, you know, things like that. So I think that's the main goal is just you know, it's the same kind of thing with lenders, you know, they they will those psychological things do come into play. And so you got to got to be cognizant of that.
[00:24:14] Ryan: I think the blessing and the curse with real estate is that it is an imperfect market so much of it comes down to subjectivity. What do we think a property's worth versus what a seller thinks it's worth and what kind of a deal are we able to get? I think the same thing kind of applies with appraisers. It is subjective their impression of you and of the property is going to affect the dollar amount that they say, you know in stone. Hey, this is what we think this property is worth. So the more you can kind of sway them in your direction. Hopefully on the upper end of the values the better off you're going to be.
[00:24:54] Bill: Yeah, that's a good point. So just the DSCR is again. Remember that you're doing a commercial loan on a residential property, so it's going to be evaluated as a commercial loan. Not as a homeowner type of loan. The rent issue is never an issue when you're when you're borrowing money on your primary residence, but it is an issue when you're looking at it from the point of view of a commercial loan. And so that DSCR is a debt service coverage ratio and that can come into play with some banks. Other banks don't really seem to make it an issue. But some do and 1:1 debt service coverage ratio is if all your expenses add up to the amount of rent that you're getting in and no lender really wants to be on the edge of a 1:1 percent debt service coverage ratio
[00:25:45] Andrew: That's all of your expenses and your mortgage
[00:25:48] Bill: Right, correct.
[00:25:50] Ryan: Basically, you're breaking even.
[00:25:52] Bill: Yeah, and they don't want you to just to break even they want to do better than breaking even. Most of them want to 1.25% something in that neighborhood of a debt service coverage ratio. So you're actually making 25% more in your rent. Then you are with all your expenses that can be a challenge for particularly in more expensive areas of the country, which we are in
[00:26:13] Amanda: and what that means is even if you hit it out of the park on your appraisal. If they don't think your property can cover the carry the debt that of the 75 percent or 85 percent loan-to-value their in a bump you down to where they feel comfortable with. And normally what we've run into is they don't just take the debt on what the interest rate they're offering they stress it a little bit because often times with these commercial loans your interest term is locked in for a certain period of time usually say like five years and then after five years it's going to be tied to whatever is happening in the low market and so they're always going to think the worst so they're going to stress you there to stress that debt up to try to make it work. So, you know, that's you want to be make sure you sure that you're maximizing your rents because some banks that's a big deal for.
[00:27:09] Ryan: I think that's why we don't use the one percent rule right. I mean it's a good like litmus test, but I know with us the minimum I'm looking for is a 1.25% rent to cost ratio
[00:27:21] So if I'm all in for $100k, I'm expecting $1250 in rent. And we hold to that rule really pretty hard because it translates pretty nicely to covering the DSCR. I had somebody ask me to look at a deal off of different Forum shot me a message and was like, hey, what are your thoughts on this and I ran the numbers on it and they were at a 1%, they met the 1% rule, but it was like once you had in Property Management, you're going to bleed on this thing every single month every single year that you own it and the guy was like, oh whoops. So you know, I think you want to make sure you're getting a little bit better than 1% deals as well.
[00:27:59] Bill: And this is a call to get market rent for your properties. When you think of buy-and-hold investment. You've got to think as a business owner and business owners don't think well, I'm going to rent to my cousin, I'm going to rent to a family member, I'm going to keep the rent low.
[00:28:18] Ryan: They were nice to me.
[00:28:20] Bill: Yeah, it's not that we're greedy landlords. It's just that we have to, we have to charge market rent or this strategy is not going to work over the long haul and I would push your rents up almost to the top end of market rents because we tend to not raise rents once we have somebody in.
[00:28:39] Amanda: That's good. A good resdient in.
[00:28:43] Bill: Yes,
[00:28:44] Ryan: We, I would say if you don't run this like a business you're going to sell to one of us at a discount later. We're gonna buy it at a steal and charge proper rent and do what you wanted to do with it. So make sure you run it like a business you get the rent you should be getting and you follow the rent curve with increasing rent as you go.
[00:29:02] Bill: Or if you want to sell it to us go to StewardshipProperties.com, we're there.
[00:29:06] Ryan: Right
[00:29:06] Amanda: So you've got appraisal and let's say let's talk about a best-case scenario. Let's say you are into a property $120,000 and you thought it would be worth about $160,000 and it came in at $200,000, which is great because I mean if you're practicing what we practice you're probably have that private lender on it for $120,000 and a bank's going to give you 75 percent loan to value on that $200,000
[00:29:35] So you just got $150,000 loan. So you're going to pay off your private lender so that you. Stack them away and repeat the process with them on the next deal and you're going to pay off the private lender at $120,000 and you're going to be taking home a check from the refinance in the amount of $30,000. And that's not money that you have to pay taxes on. Refinance proceeds you don't pay taxes on. You pay taxes when you sell the property, not when you refinance it. So that could be $30,000 that could cover your operating costs, help you on a down payment maybe into your next property if you wanted if you're doing something like that, maybe cover shortages from the other properties.
[00:30:20] So, I mean that's going to be a best-case scenario. Our goal always is just to at least get out what we have into it, which usually covers our initial private lender so that we can free up our private lender money and roll them into the next property
[00:30:37] Ryan: leaving us in that deal with effectively nothing down.
[00:30:39] Amanda: Nothing down.
[00:30:41] Bill: And occasionally we are looking for people who would be willing to go into second position if we have pretty strong cash flow, maybe even from other properties, but we got a dog in the mix or a couple of them and we're having to leave quite a bit of our own money in, it might be a time for in some property that you own. Maybe not the one we're talking about, but another one to put a lender on and second position.
[00:31:04] Amanda: Would be like behind the first mortgage, maybe you find you feel like there is equity and there is cash flow to cover it. You would stack another mortgage maybe $50,000 in and you feel like those rents can cover that extra debt that sort of a situation.
[00:31:22] Or maybe a property you own for 10 or 15 years and you've paid down a huge chunk of principle and you're just not ready to refinance because that first loan has amazing three percent loan terms, you know, you might put a private lender in to a second position loan. It's the same idea as like a homeowner who puts a home equity line of credit on their loan. That's a second position.
[00:31:46] Ryan: I think one of the key takeaways for me on on my first one that I did was really just seeing it all come together. Paying off that lender and realizing that you know, assuming they want to keep working with you, you can effectively go shopping with their money again and buy something different.
[00:32:05] So you're able to effectively cycle it. You know, I know people that, they're using their own capital. I've got a buddy of mine in Michigan who had about fifty thousand dollars that he turned into 12 duplexes over the course of several years and was effectively able to retire off of that. Our models a little different that we're using private lenders and we're using a lot of them at scale, but I think it's one of those kind of on your first one you're going to learn a ton and it's just kind of a get started thing. I think the other thing for me is when I look at like Fix and Flip versus Buy and Hold you know, I've done flips before where I've made $35,000 and that's definitely not tax-free quite a bit of it's taxed. So if I have the option to do that much work to get $30,000 or I do a really, really good BRRRR deal and I do the same amount of work. I get the same $30,000, but I don't have to pay taxes on it and it gets to pay me for the rest of my life, That's a no-brainer for me.
[00:33:08] Amanda: And I think it's Bill who coined the term in our business because we're mostly Buy-and-Hold. We don't necessarily flip properties. We're flipping Capital. So we're kind of flipping our private lender on to the next deal so that we can repeat the process. I think that's where we're going to end things today. Thank you guys so much for tuning in. If you liked what you heard, please subscribe to our podcast and look for us on thegoodstewards.com. Have a great day.