BRRRR, Step by Step: Which Loan Fits Each Stage

BRRRR stands for buy, rehab, rent, refinance, repeat. You buy a property that needs work, renovate it, lease it, refinance into a long-term loan, and then do it again. Each stage calls for a different kind of loan. Here is how the stages line up with RED Lending's programs.

Buy and rehab: Fix & Flip

A Fix & Flip loan covers the purchase and the renovation. It is a short-term loan, typically interest only, with the balance due at maturity. That is why the refinance needs a plan before you close on the purchase. How much the loan covers is set deal by deal, based on the purchase price, the renovation budget and the after-repair value.

Rent: get the lease in place

The long-term rental loan qualifies mainly on the property's cash flow. DSCR, or debt service coverage ratio, compares the monthly rent to the monthly payment. The payment includes principal, interest, taxes, insurance and any association dues. The more the rent covers the payment, the stronger the file reads. On a refinance, expect to show signed leases and proof that rent is being collected.

Finished, but not leased yet: Stabilized Bridge

If the renovation is done and the property is rent-ready or listed, a Stabilized Bridge loan can carry it while you lease up. There is no renovation budget and no scope of work. The loan is underwritten with the exit in mind, so it can roll into a long-term rental loan once the property is leased.

Refinance: Rental Loan (DSCR)

The Rental Loan is a long-term loan on a single 1 to 4 unit rental. How much it covers depends on the type of refinance, rate-and-term or cash-out, and on the guarantor's credit.

Timing matters here. Lenders look at how long you have owned the property, often called seasoning. Cash-out soon after purchase is limited. A large jump in value over a short time needs support, such as a scope of work, invoices and photos of the finished renovation. Ask the desk how the timing reads on your deal.

Repeat: Rental Portfolio

Once you hold several rentals, a Rental Portfolio loan can put them under one loan, with one closing and one payment. Occupancy across the portfolio matters, so keep the units leased.

Plan the calendar

• The seasoning clock starts on your purchase date.
• Fit the rehab and the lease-up inside the Fix & Flip term, with room to spare.
• Keep your scope of work, invoices and photos. They help support the value on the refinance.
• Send the desk the whole plan at the start, so both loans are sized with the exit in mind.

Terms are set deal by deal.

This post is general information, not financial, legal or tax advice. All loan terms are subject to underwriting and credit approval.