Welcome to another Ask Me Anything (Ask Us Anything?) episode! Each week we’ll answer your questions on STR, real estate, OTAs, and everything in between.

Leslie (@FoxandHenDen) asks:

Can you advise on the refinancing options when using the BRRRR method (Buy, Rehab, Rent, Refinance, Repeat)?

Keegan asks:

Where is the best place to start researching the rules and regulations for short term rentals in your city?

Thanks to Marc Kade from Princeton Mortgage for the guest answer! And thanks to everyone who submitted questions. To hear your voice on the show and send a question to Sarah & Annette, visit Speakpipe.com/ThanksforvisitingAMA

Resources:

• RentResponsibly.org

Thanks for Visiting is produced by Crate Media.

Mentioned in this episode:

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[00:00:05] You're listening to the Thanks for Visiting podcast. We believe hosting with heart is at the core of every short-term rental. With Annette's background in business operation--

[00:00:10] And Sarah's extensive hospitality management and interior design experience, we have welcomed thousands of guests from over 30 countries, earning us over a million dollars and garnering us thousands of five-star reviews.

[00:00:30] We love sharing creative ways for your listing to stand out, serve your guests, and be profitable. Each episode we will have knowledgeable guests who bring value to the short-term rental industry--

[00:00:39] Or we will share our stories of our own experiences so you can implement actual improvements to your rentals. Whether you're experienced, new, or nervous to start your own short-term rental, we promise you'll feel right at home. Before we dive into the content, let's hear a word from our sponsor.

[00:01:01] Hey, listeners, welcome back to the great week. I am Sarah Karakaian.

[00:01:03] I am Annette Grant, and together we are--

[00:01:07] Thanks for Visiting.

[00:01:08] We've got an Ask Us Anything episode or AMA episode, Ask Me Anything where you get to submit your questions to the Thanks for Visiting website. If you go to thanksforvisiting.me, in the upper right-hand corner, you'll see a red button and it's our call to action. It says Ask TFV and you can ask us anything related to short-term rentals.

[00:01:28] This is quickly becoming our favorite part of the week. We love hearing your voices. We love hearing your questions. So bring them on. I do want to circle back. We have some questions from the last episode about the Schlage on code and Remote lock. We are doing some confirming on our answer.

[00:01:49] We'll confirm right now. So apparently Remote lock are saying they can have this Schlage on code to work, but there are limitations such as if you have a multifamily, a front common door that multiple different guests have to use in order to get to their different apartment, my understanding is that they can't get that to work. Or if you want a front and back door to both work under one code under one reservation, they can also not do that is my understanding. If you mailed in, thank you very much for keeping us on track.

[00:02:23] Yes, we appreciate you. And we always welcome that too. Things change every single day, apps change, locks change.

[00:02:30] And we are sometimes wrong. So that was what we got from them. I've never used Remote lock. We do use PointCentral and they do not work with Schlage on code. And they do work with the Yale locks we talked about, and they do offer those common door functionality, which is really great. So anyway, moving on.

[00:02:48] Yap. I just wanted to circle back.

[00:02:50] Okay, we're going to talk about loans. This first question is from Leslie. And here we go.

[00:02:56] Hi, my name is Leslie. I have A frame in Little Switzerland, North Carolina. My question for you is we talk about the BRRRR method on some of these podcasts, including yours. And I'm just wondering about the refinance part of it. Can you guys advise when after you've made your changes and upgraded the house that you bought when you can refinance? What are the rules on that? How quickly can a house be refinanced? You can find me @FoxandHenDen on Instagram.

[00:03:28] Awesome, Leslie, fantastic question. First, let's just talk about the BRRRR method. Leslie's recording maybe was a little bit hard to hear, but she's asking when can you refinance a property under the BRRRR method. BRRRR is buy, rehab, refinance, rent and then repeat the process. The reason why I love this method and why Annette and a lot of you love it is because it's almost like a free house. You get a free house especially if you can get the Gap funding between buying the property and using hard money or what have you from someone else to make 8, 9, 10, 11, 12% of money whatever it is. You essentially have no money in on it, you have your time, which is definitely valuable. But then you refinance into a mortgage and it depends on how great you bought that house for you can even get some money back. So there are definitely some deals out there like that. We, however, are not refinance experts.

[00:04:04] And we will also say when we say a free house, nothing is free. And Sarah and I know that. There is an investment somewhere, there is an investment in time, there's an investment in the rehab, there's an investment in the relationship that you have with the lender, so we're going to play the response to this from one of our dear friends Mark Kade.

[00:04:43] Marc Kade is definitely an expert. We love his take on things. So here's Marc's response.

[00:04:45] He helps us buy our real estate. So thank you, Marc.

[00:04:46] Hi, Leslie. My name is Marc Kade, and I'm with Princeton Mortgage. I'm here to answer your question regarding when can you start your cash-out refinance after utilizing the BRRRR method. The answer to that question is there is no specific rule and or guideline to this answer. And the reason is there are lots of different loan programs available out there. Most people are very familiar with Fannie Mae and Freddie Mac, those are two loan programs that could be utilized for this type of situation.

But there are many other loan programs out there as well-- commercial loans from your local banks, portfolio loans from your local banks. There are lots of different types of niche lenders out there that might have nonprime and subprime options that could work as well also. Now, every loan program out there has different rules and or guidelines that must be followed. And additionally, these rules and guidelines that these different loan programs have, do tend to change from time to time.

Now I work primarily with Fannie Mae and Freddie Mac. And the guidelines that I work with for Fannie Mae and Freddie Mac are different today than what they were two years ago, three and four years ago. So they're constantly changing and evolving. The rules today, though, for Fannie Mae and Freddie Mac, allow you to start your cash-out refinance from day one after you purchase the house. Most people don't realize that because they used to have rules of they had to wait a year then six months. So you could today on a Fannie Mae and Freddie Mac loan, start your cash-out refinance one day after purchase.

However, they do have a little caveat that you can only get back in terms of actual cash out the amount that you purchase the property for. So a lot of times, you want to wait six months to be able to get the maximum amount of cash back, especially if you've done a renovation. Now, there are some situations depending on how much money you used for your renovations, what the home value is today, that maybe it doesn't matter if you will.

Let's pretend you bought your A frame for $200,000. Let's further pretend that it took you three months to complete the renovation. And let's say maybe you spend $15,000 in renovation costs, and now it's worth $250,000. Well, Fannie Mae and Freddie Mac will lend you on a cash-out refinance of an investment property up to 75% of the home's value. Well, if it's worth 250, then the maximum loan amount you can do is $187,500. And that's less than what the original purchase price was. So in that situation, it doesn't matter if you waited six months or not. So you could be doing that right away.

But let's change the assumptions to you bought it for 200,000. Maybe you put $25,000 into the renovations, but now it's worth $300,000. It's been three months from now. 75% of 300,000 is $225,000. However, it's been within less than six months. So you can only get $200,000 cash back. And that wouldn't be the total amount of money maybe that you want to get. Maybe you're trying to get almost all of your money back and you would love to do a loan for $225,000. In that situation, you probably would want to wait till a full six months to make that work. Now that is Fannie Mae and Freddie Mac as they are today.

Guidelines from commercial banks or portfolio loan bank programs might be different in your area. And you need to call around and check those things out. And you need to find a program that works well for you, has a loan officer that you're working with that also understands those guidelines really well, is also understanding what your goals and the needs are for what you're trying to accomplish long term. That way you can figure out what is the best situation, go right away, or maybe wait because maybe there's a better situation if you wait a little longer. I hope this answers your question. If it doesn't fully, please reach out to me personally. Again, my name is Marc Katie with Princeton Mortgage. You can contact me at my email address mkade, K-A-D-E, @princetonmortgage.com. Thank you.

[00:09:26] You know why I like Marc so much-- and listeners, we don't get an affiliate for this, no like bounce back here or whatever, but Marc is so clear, deliberate--

[00:09:30] And by the way, that is how Marc talks all the time, and he will explain everything like that all the time. And that is why he is our trusted adviser.

[00:09:35] No, I'm like even if this is your third, fourth, fifth, 20th transaction, every transaction is different and you need to understand it at its core. And so having a loan officer like Marc who is patient isn't just in it for the commission and wants to have you as a long term customer, God, that's good. So, Leslie, we do hope that answered your question. Like all things in real estate, it depends. But how cool is that, that you could start day one at the numbers?

[00:10:00] And I'm not joking. Sarah and I just looked each other. I was like, wait a second, can we fire up my place already? So we're learning from ourselves. Isn't that something? But great question. Hopefully, everyone's got their pen and paper. I feel like I could even hear Marc typing on his calculator during that. But please listen to that again, and start doing the numbers for yourself.

[00:10:20] And always be calling around. Even if you don't have a property, it's always good to call a local bank, call a big bank, call a brokerage, and just ask questions, give them hypotheticals and just get to know people. The last thing you want to do, which is something I find myself always doing is not asking the questions until I need the answers. And then I'm like, why is this taking so long? Always be in the know, especially as an investor, it's just going to make you more savvy. All right, on to the next. We have a question about regulations. Here we go.

[00:10:55] Hey, there, I'm just wondering if you guys have any tips on where to start to find the regulations for short-term rentals in your city and community, just where the best place to start is. Thank you.

[00:11:08] What a great question.

[00:11:09] Thank you, Keegan. Number one, this is where we're going to start. We're actually going to have you start both for your city. We're actually going to have you start, are you in a building? Do you have shared walls? Is there an association in the building that you're in? Are you allowed to short-term rent in that building? Are you in a homeowner's association? Does the homeowners association allow short-term rentals because here's the deal, city-wide, it might be okay, but it gets super granular on where your door is located, and you need to check there first.

So if you've already purchased a property, you're just going to have to look at your bylaws and look at your homeowners' association. But if you haven't yet, that is something to be very clear with your realtor about that, hey, I want to make sure that I can purchase somewhere that I can short-term rent under 30 days. Some places are over 30, on those homeowners' association those buildings, but our first place for you to start is actually where that door is located in that neighborhood.

[00:12:06] And then you want to go to your municipalities, city, town village. Whoever you pay taxes to and who's making decisions in the area where your home is, or the home is located, that is a great place to start. And if they don't have the answer for you and they don't know where to point you--

[00:12:25] you can also look at local Facebook. There's a lot of Facebook groups in almost all cities for short-term rental host. And that's a quick one too to just see if there are there any that even exist. You can put your zip code in and where your addresses see if there's other short-term rental hosts. That doesn't mean it's legal, but you can see if there are others. And a lot of times if there are regulations-- you have to pay to play. They'll have your number that you're approved by the city to rent. You can also start there, but definitely like Sarah's saying with the city, you want to check that out.

[00:12:55 I was going to say back in the day, there would be sometimes the people or areas we would call and ask and they would have no idea because it was so new. We're still very much on infancy. That's why I'm saying I wonder if there might even be an instance where they're like, I don't know. But I bet you in most cases, people are going to want to point you or they're going to have an answer for you. There's also our friends over at Rent Responsibly. So if you just Google rentresponsibly.org, they will have a place too on their website with resources on where you can reach out. If you're still lost, I'm sure the kind people over at Rent Responsibly can at least help point you in the right direction. And I just want to remind our listeners, Annette, that that's you where you and I met.

[00:13:01] Yes, City Council meeting. So show up once you figure out what the rules and regulations are. And we can not wrap up this episode, we say, just because you're allowed to do it now does not mean you're going to be able to do it in three months or six months or a year. Regulations change. You need to keep up to date on that. And we have seen it very often in our careers in short-term rentals, where people purchase in certain areas because it's like, oh, they allow them, they're always going to allow them and it changes. So it's important for all of us. We thank you for listening to the podcast because we need to professionalize the industry, know your neighbors, be a face of short-term rentals. But yes, please keep on top of that, because it is an ever-changing industry.

[00:14:15] And not just be a good listener, but be an activist in that world. Show them that you're good neighbor. How can you help bring more peace of mind to those that make the decisions around regulation? So just get involved, speak up, do all those good things. And Keegan, thank you so much for asking the question. We love that that is still a topic that is being discussed. It's not going to go away anytime soon, if ever. And so thank you all listeners for just being amazing hosts and leveling up this industry. That is why Annette and I show up this mic now twice a week. On that note, we will be here for you this coming Thursday and every week. I am Sarah Karakaian.

[00:14:49] I'm Annette Grant, and together we are--

[00:14:51] Thanks for Visiting.