The Wealth-Generating Benefits of BRRRR Refinancing

The Wealth-Generating Benefits of BRRRR Refinancing

Not long ago, many real estate investors' primary aims were to renovate and flip properties. In today's high-demand, rising-home-values market, that formula has shifted to purchase, repair, rent, refinance, and repeat (BRRRR).


More experienced investors, and definitely more of our clients, are opting to purchase and hold rather than flip. They are using this tactic to expand their real estate portfolios by borrowing the equity from existing rental homes to purchase other residences - a wise strategy, especially when home prices rise and rents rise.

The purchase, repair, and rent components of BRRRR are all crucial to your success but don't overlook the refinancing stage. Corridor Funding has assisted several clients in refinancing Fix-and-Flip loans into long-term loans, freeing up funds to invest in other properties.


The following is how it works: a consumer will begin with a Fix and Flip loan. When their repair is finished, they refinance their hard-money loan into a longer-term loan that will allow them to rent out the property, freeing up cash flow and taking advantage of the tax advantages that come with waiting to sell.


BRRRR TAX BENEFITS


The tax benefits of BRRRR are substantial. When you flip a house, you might make a lot of money quickly, but you have to pay more taxes.


You avoid the taxable event of selling the property by refinancing. Furthermore, refinancing allows you to take advantage of the existing accelerated depreciation legislation (watch for a future blog post on this topic, coming soon).


One of the major tax advantages of real estate investing is depreciation or the decline in the value of an item over time. Accelerated depreciation is even more beneficial to real estate investors since it allows them to take a larger deduction by claiming the maximum amount of depreciation in the first few years of ownership.

Even for high-income taxpayers, accelerated depreciation reduces or mitigates taxes. Many astute investors will take accelerated depreciation for several years of renting out the property. After fully utilising the accelerated depreciation, they sell the property, frequently to the same tenant, with seller financing. The investor knows if he or she is dealing with a timely payer by the time of the sale, and after factoring in the pride of home-ownership, they are likely to continue to pay on time. Many of Corridor Funding's clients sell their homes to past tenants who may not qualify for a traditional loan, so if they keep the mortgage note, they will often obtain a higher interest rate, or they may sell the note and reinvest the funds when the time comes.

THE QUICK CLOSE, LOW COST, BUY & HOLD LOAN IS NOW AVAILABLE.


The process begins with refinancing out of the first hard money loan. Time is of the essence, as any fix-and-flip or buy-and-hold investor understands. After all, the first rule of real estate is that money is made when you buy, so working with a lender who can 1) get you into that "value add" play and lend you the renovation money to get it rent ready, and 2) get you quickly into a subsequent loan that allows you to maximise cash flow while closing the loan quickly is critical.

Traditional banks don't understand the urgency and often take 2-3 months to close on a refinance while they analyse your bank records, tax filings, pay stubs from your first job as a teenager, and so on.


Corridor Funding provides two quick refinancing solutions. Our best pick is the Quick Close, Low Cost, Buy and Hold Loan, which is a 5-year balloon loan repaid over a 30-year principle and interest schedule. It is only offered to existing clients who started with a fix-and-flip loan from us. You'll be able to take advantage of the 60-month loan once your house is rent-ready and has three seasoned rental payments, thanks to your established payment history as our customer.

This loan includes various benefits for the savvy real estate investor:


A loan for 60 months with payments spread out over 30 years.

Financed into your preferred LLC or organisation

Your credit record will not reflect an extra mortgage, reducing your credit score because your debt-to-income ratio increased.

Interest rates are now hovering around 6-7 percent.

Fast closing in 2-3 weeks, compared to our 30-year fixed closing in 3-4 weeks.

You pay down the principal debt while optimising depreciation deductions, and then you choose one of two typical exit strategies: 1) cash out refi to acquire additional properties and generate more passive income, or 2) sell using owner finance (still creating passive income).

You're increasing your passive income while also increasing the value of your rental property.


Most importantly, this method frees up your time to do what you do best: locate real estate DEALS to buy!


Corridor Funding also provides 30-year loans to investors who may not have the ambitious objective of developing a passive income stream through a portfolio of single-family rental units. However, for individuals who buy two or more properties each year, the Quick Close, Low Cost, Buy & Hold Loan is great since it allows investors to reinvest assets into new ventures.

IMPORTANT LESSONS FOR REAL ESTATE INVESTORS


Homes are in great demand in the present market, prices are growing, and rents are rising as well; all of this provides an environment in which buy-and-hold investor portfolios may develop equity and increase their real estate portfolios.

Refinancing is one of the most significant R's in the BRRRR formula. The suitable credit type will optimise your tax advantages while freeing up funds for other investment properties.


When it comes to hard money loans, timing is of the importance. You must refinance as soon as possible to prevent going over the maturity date of your short-term loan and incurring higher interest and loan extension fees.

The tax benefits of BRRRR are substantial. You avoid the taxable event of selling the property by refinancing. Furthermore, refinancing allows you to take advantage of the existing accelerated depreciation legislation.

Consult your CPA about your real estate investing tax options.

Begin right now! Corridor Funding's professionals can help you refinance your investment property.

Published by Martina Lewis

Comment here...

Login / Sign up for adding comments.