From the BiggerPockets Blog

 BiggerPockets Blog »

Jump to Forum View All

Click a category below to view different forum categories.


General Info

BiggerPockets Q&A, Site Questions, & Announcements

1522 topics, 14443 posts — Last Post 04/23/14, 05:38PM

BiggerPockets Exclusive PRO Area

118 topics, 844 posts — Last Post 04/23/14, 08:28AM

New Member Introductions

10977 topics, 86488 posts — Last Post 04/23/14, 05:39PM

Real Estate Success Stories

398 topics, 6196 posts — Last Post 04/23/14, 05:41PM

General Real Estate

General Real Estate

Buying & Selling Real Estate

5989 topics, 47193 posts — Last Post 04/23/14, 05:40PM


649 topics, 5857 posts — Last Post 04/23/14, 02:47PM

Get Foreclosure Help - Help Stop Foreclosure Forum

316 topics, 2557 posts — Last Post 04/21/14, 03:59PM

Home Owner Association (HOA) Issues & Problems Forum

238 topics, 1611 posts — Last Post 04/23/14, 04:02AM

Do it Yourself

658 topics, 6316 posts — Last Post 04/23/14, 09:50AM

Reviews & Feedback

Real Estate Deal Analysis and Advice

3706 topics, 29719 posts — Last Post 04/23/14, 05:23PM

Real Estate Guru, Book & Course Reviews and Discussions

1139 topics, 11598 posts — Last Post 04/23/14, 02:31PM

Ask About A Real Estate Company

743 topics, 7344 posts — Last Post 04/22/14, 11:25PM

Real Estate Investing

Real Estate Strategies


5633 topics, 43934 posts — Last Post 04/23/14, 05:34PM

Rehabbing and House Flipping

3351 topics, 31097 posts — Last Post 04/23/14, 02:09PM

Real Estate Development & New Home Construction

554 topics, 4694 posts — Last Post 04/22/14, 09:17PM

Innovative Strategies

705 topics, 6044 posts — Last Post 04/22/14, 04:06PM

Tax Liens, Notes, Paper, & Cash Flows Discussion

867 topics, 6692 posts — Last Post 04/22/14, 08:22PM

Rent to Own a.k.a. Lease Purchase, Lease Options

698 topics, 4926 posts — Last Post 04/23/14, 01:33PM

1031 Exchanges

143 topics, 1062 posts — Last Post 04/22/14, 03:21PM

Foreclosure Investing

General Foreclosure & Pre-Foreclosure Forums

1691 topics, 11313 posts — Last Post 04/22/14, 09:26PM

HUD, VA, and Tax Sales

416 topics, 3103 posts — Last Post 04/23/14, 02:29PM


1217 topics, 10595 posts — Last Post 04/23/14, 09:23AM

Short Sales

1538 topics, 13139 posts — Last Post 04/22/14, 01:38PM

Landlord & Tenant Forums

Landlord & Rental Property Questions

7245 topics, 71130 posts — Last Post 04/23/14, 05:40PM

Mobile Homes & Mobile Home Park Investing

639 topics, 5144 posts — Last Post 04/23/14, 07:57AM

Investor Basics

Starting Out

7727 topics, 60654 posts — Last Post 04/23/14, 02:30PM

Investor Psychology

431 topics, 6107 posts — Last Post 04/20/14, 06:04AM

General Real Estate Investing

4727 topics, 37315 posts — Last Post 04/23/14, 02:57PM

Real Estate Investor Marketing

1738 topics, 14146 posts — Last Post 04/23/14, 03:15PM

Commercial Real Estate

Commercial Real Estate Investing Forum

1412 topics, 9004 posts — Last Post 04/23/14, 02:19PM

Multi-Family and Apartment Investing

1123 topics, 9381 posts — Last Post 04/23/14, 04:46PM

The Business of Real Estate

Real Estate Technology and the Internet

Real Estate Technology, Social Media & Blogging

644 topics, 4911 posts — Last Post 04/23/14, 04:03PM

Business Basics

Goals, Business Plans & Entities

833 topics, 7573 posts — Last Post 04/23/14, 05:37PM

Real Estate Finance & Legal

Financial, Tax, and Legal

Tax, Legal Issues, Contracts, Self-Directed IRA

2802 topics, 20135 posts — Last Post 04/23/14, 04:45PM

Property Insurance

311 topics, 2057 posts — Last Post 04/23/14, 01:20PM

Personal Finance Discussion

330 topics, 2754 posts — Last Post 04/22/14, 12:06PM

Loans, Mortgages, Credit Lines

Private & Conventional Lending Discussion

2852 topics, 19844 posts — Last Post 04/23/14, 05:05PM

Creative Real Estate Financing

1220 topics, 8855 posts — Last Post 04/23/14, 05:22PM

Crowdfunding Real Estate

35 topics, 463 posts — Last Post 04/19/14, 06:24PM

Real Estate Professionals

Real Estate Professionals

Real Estate Agents

1217 topics, 8024 posts — Last Post 04/23/14, 08:23AM

Bankers, Lenders, and Mortgage Brokers

442 topics, 1929 posts — Last Post 04/22/14, 11:03AM


269 topics, 1690 posts — Last Post 04/22/14, 07:33AM

Local Real Estate

Local Real Estate

Local Real Estate Networking & Recommendations

2015 topics, 11749 posts — Last Post 04/23/14, 05:15PM

Americans & International Real Estate

162 topics, 568 posts — Last Post 04/14/14, 11:19AM

Foreigners Buying in the USA

62 topics, 409 posts — Last Post 04/10/14, 06:27AM

Canadian Real Estate

65 topics, 439 posts — Last Post 04/22/14, 09:27AM


Real Estate Marketplace

Real Estate Marketplace

15080 topics, 54118 posts — Last Post 04/23/14, 05:37PM

Real Estate Events and Happenings

168 topics, 2598 posts — Last Post 04/23/14, 05:03PM


Off Topic


2907 topics, 32441 posts — Last Post 04/23/14, 11:24AM

Housing News & Real Estate Market

920 topics, 8391 posts — Last Post 04/23/14, 02:43PM

BiggerPockets Real Estate Investing Summit

97 topics, 1752 posts — Last Post 04/23/14, 04:51AM

BiggerPockets Resources

Forums » Buying & Selling Real Estate » Cash Out Refi Strategy for Acquiring Rentals

Cash Out Refi Strategy for Acquiring Rentals

37 posts by 20 users


Real Estate Investor · memphis, Tennessee

@Jimmy H. -

I was reading down this thread and @David Beard beat me to the comment. This is a great strategy on paper, but can become a flawed strategy to execute very quickly and I personally know. The leverage amounts can put you and your portfolio under a great deal of stress and with each successful refinance (if you even get that far) you feel like this is the greatest thing since the dude climbed the beanstalk and found the goose laying golden eggs. Even thinking this strategy can lead to poor decision making like buying subpar deals simply to pull money out and eventually getting swallowed by upkeep, record keeping, maintenance and vacancies in the rental portfolio.

I'm not saying that you are going to go down that path, I'm just saying that many have been seduced by this "get paid to buy rental property strategy" and many have ended up losing a lot.

On a side note, it really concerns me for the real estate market that banks are even starting to think this way and offer this alternative again. This is absolutely why many investors failed from 2003-2008.

Small_new_mi_logoChris Clothier, Memphis Invest, GP
Telephone: 901-212-9647
Website: 1(877)-773-9998 Chris D Clothier

Residential Real Estate Agent · Jacksonville, Florida

@David Beard What is the delayed cash out financing rule? I have considered using this strategy in the past but didn't realize they don't do cash out refinancing on 5-10. That would certainly put a damper on the plan. I have only one conforming loan right now and two free and clear properties I was thinking about pulling money out of.

Residential Real Estate Agent · Jacksonville, Florida

@Chris Clothier I would think that as long as you are conservative with your estimates and have strong cashflow you would be just fine. It shouldn't be much different from getting a normal conforming loan to purchase a property. Obviously if your buying marginal properties your likely to get yourself into trouble no matter what. It seems like people these days are much more focused on cashflow then during the boom. Rapid expansion can cause troubles too but being forced to wait 6-12 months should minimize that. With the 10 property cap on conforming loans that also should help keep people from getting themselves into trouble.

Real Estate Investor · memphis, Tennessee

@Tim Czarkowski - Your previous post about owning a property free and clear and wanting to pull some cash from those properties is very different from a strategy of buying cheap with cash, doing a fix-up, having a bank that places a very advantageous value on the property and then lending 70-80% on the property. I AM NOT SAYING THAT ANYONE IS DOING ANYTHING WRONG...Needed to be clear on that. That is a strategy that relies on finding properties that have super deep discounts, require littel cix-up and that there is still a healthy spread between costs (purchase+rehab) and value.

It led people to do crazy things and the words "CASH OUT" are the difference makers.

If someone simply wants to refinance all or some of their costs and recover a portion of their costs, that is a different strategy that buying a property simply because the math says you can walk from the closing table at refinance with all of your costs plus additional cash!

Lastly, for anyone reading this - there is no judging here, just my opinion. Do deals however you want and best of luck to whichever strategy you take. I am simply giving a point of view based on 10 years of experience which includes good decisions and bad

All the best - Chris

Small_new_mi_logoChris Clothier, Memphis Invest, GP
Telephone: 901-212-9647
Website: 1(877)-773-9998 Chris D Clothier

Residential Real Estate Agent · Jacksonville, Florida

@Chris Clothier I hope you didn't take my post the wrong way. I was just pointing out that there is also a good way to execute this strategy. I understand you didn't mean that people were doing anything wrong but that they could get themselves into trouble. I completely agree with you that "cash out" shouldn't be the magic words to do a deal. That's a terrible strategy if they can't support the debt load. As long as you are conservative, as with anything else you a much less likely to get yourself in trouble. I personally only purchase properties that will leave me with a lot of free cash flow even if leveraged up to 75%. If they don't, it's not a good rental. It may be a good flip but not a good rental. In that case it should just be sold.

I wouldn't think too many banks are being aggressive on their values these days. They certainly were before the crash but it seems they have done a complete 180. I've had the opposite problem in several deals recently. In one appraiser was comparing a trashed out bank foreclosure to a property that just recently had a full rehab like it was an apple to apple comparison. I eventually got him to come up to the sales price by sending him a few decent comps.

The properties I am looking to pull money out of fit this scenario perfectly. The one was purchased a year ago and the other several months ago. We paid cash, rehabbed them, and rented them out. They are both 2 units, provide great cash flow, and with purchase+rehab are still below 70% of market price.

Everyone makes mistakes, I certainly have. lol Anyone with a business the size of yours certainly has and it sounds like you have an absolutely amazing business. You just can't be successful without making some mistakes. You have to try to learn from others mistakes and when you can't, make sure they are not career ending mistakes. Once again I completely agree with you that you could get into trouble if your focused on the wrong thing and that is true of many strategies. There are good ways to implement them and bad ways also.

Real Estate Investor · memphis, Tennessee

Absolutely @Tim Czarkowski. I wanted to be sure that @Jimmy H. knew I wasn't attacking or judging him for asking about or trying this strategy. I appreciate the great back and forth on forums like and the chance to have some real conversations and share ideas. So no, I did take your post the wrong way, I just wanted to be real clear about what I thought was risky in paying cash and refinancing.

Great point btw that there is risk in every strategy and if you push the limits you can hurt yourself and others in the process.

Have a good one - Chris

Small_new_mi_logoChris Clothier, Memphis Invest, GP
Telephone: 901-212-9647
Website: 1(877)-773-9998 Chris D Clothier

Real Estate Investor · Cincinnati, Ohio

Originally posted by Tim Czarkowski:
David Beard What is the delayed cash out financing rule?

Tim, google search on this: delayed financing rule

E-Mail: [email protected]
Telephone: 502-321-6328

Residential Real Estate Agent · Jacksonville, Florida

@Chris Clothier Ok great, I thought that was directed at my The back and forth is the best part of a forum like this. You get to see the different sides of an issue as opposed to just one aspect.

@David Beard Thanks for that, I read a few of the posts and I want to make sure I understand this correctly. So for loans 5-10 the only way to refinance conventionally is to use the delayed financing rule? In addition they limit you to 65% or purchase price + rehab, which ever is lower, but with no seasoning?

It sounded like several people found small local banks that would do portfolio loans up to 75% with no seasoning. I guess when I get to 3 I should start shopping around. lol That would certainly be very useful.

Real Estate Investor · Cincinnati, Ohio

@Tim Czarkowski - yes, you're exactly right, except that it should be noted that you must have paid all cash to purchase the property, and you have to prove with bank statements, that the cash to purchase was not borrowed.

Finding local banks or CU's that will do immediate appraisal-based refi's on investment property is VERY DIFFICULT. I know of none in my market. The banks are understandably very skeptical of appraisals that show immediate and significant equity creation above the cost of rehab.

E-Mail: [email protected]
Telephone: 502-321-6328

Residential Real Estate Agent · Jacksonville, Florida

@David Beard I can certainly understand why they might be skeptical, particularly after the crash. I saw a show where a group of investors, straw buyers, appraisers, and mortgage brokers all got together to defraud the banks. People like that hurt everyone else. The truth is that you can purchase places for less than market value and you can increase value by more than what you put into a property. Finding someone who does it in this area may not be likely but I'll at least give it a shot. It would certainly be worth my time if I found someone.

· St Paul, Minnesota

Take this with a grain of salt, as I have a miniscule amount of experience as the rest of you....

My opinion (maybe influenced by the fact that im considering it and in the position to do so) is that the Cash Out strategy is still a great strategy. That said, I will say it is ONLY if you buy right. Back in the boom, prices were high, appraisals were extremely inflated, and investors that David speaks about leveraged out these properties to a point (I am guessing) where they barely cash flowed, or broke even, gambling heavy on appreciation and principal accumulation. I find this mind boggling, because even as a 26 year old newbie, and before even reading more into it, I came to the conclusion that I if I cashed out, my SFH needs to cash flow at least $2-300 a month at current rental rates. What if (because of multiple variables) rents drop $1-200 a month!? You may have just hosed yourself. This also gives you room to accept less rent, if need be, in order to keep the property filled 100% or close to it.

I think it is a viable option these days IF.
1. you buy right/deep discount
2. study comps in your area to find the exact ARV
3. rehab the property out of pocket on things that will specifically increase value - maybe work hand in hand with a private appraiser for an opinion/advice on where to prioritize your improvements?
4. know exactly what it will rent or sell for finished, if a BAH/rental make sure to leave yourself cash flow. Conservatively $200 a month or more.

Again I dont have much experience, but this is my opinion/thoughts thus far.

Real Estate Investor · Cincinnati, Ohio

Originally posted by @Tim Czarkowski:

So for loans 5-10 the only way to cash-out refinance conventionally is to use the delayed financing rule? In addition they limit you to 65% or purchase price + rehab, which ever is lower, but with no seasoning?

Actually, the limit is 65% or purchase+closing costs. Rehab costs cannot be factored in.

E-Mail: [email protected]
Telephone: 502-321-6328

Real Estate Investor · Fresno-Visalia, California

I've been following this strategy for a few years. However when I cash out I usually do not recoup all of my cost in the deal. Today I had 4 properties appraised by a local bank for a cash out, 10 year loans, 5.2%, 75% LTV. My previous 10 other cash outs were with another bank at 15 year loan, 6.5%, 65% LTV.

This is whats going on in my mind....

-Purchase 40-70K properties that produce a $200+ cashflow after expenses each month.

- Keep a solid day job
- Your property reserve should be monthly expense of at least $50 per property
- Vacancy makes me sick
- I'm never sick
- Personally manage properties
- Good record keeping
- Own other assets
- Recycle your capital and buy more assets
- Professional tax returns
- Buy Adobe, all your documents like loan applications should be typed, do not hand write them and look like your in grade school, report cards do not exist, financial statements are what matters
- Go above and beyond delivering any request a bank might have quickly, neatly and in person
- Provide more information to the banks that will make you look attractive
- Buy sees candy for the receptionist
- When your rejected by one bank call 5 more
- Question everything, most of the time frontline bankers have there head up ... so question stuff and get to the decision makers
- Document your repairs and buy a binding machine to present portfolios to the bank and impress the crap out of them
- When you deliver items to the bank keep them simple. If you over complicate a letter or anything you will confuse them and potentially lose the interest of the bank.
- Keep a one page document with your goals and vacancy rates

Real Estate Investor · Fresno-Visalia, California

I also wouldn't argue over a .5 or 1% + - interest rate. If your deal pencils out let the bank make some money on you.

· St Paul, Minnesota

you mean let the bank make money off your renters ;)

Real Estate Investor · Fresno-Visalia, California

These loans have been a very slow process. I'm looking at +45 days and no loan docs yet.

Property Manager · Las Vegas, Nevada

You could keep it simple, sell it and buy 2 more, flip one then keep one. @David Beard madae an great comment above, when you have a couple of bad months, not being "strung out" on high LTV debt can be a lifesaver.

Telephone: 702-870-5500
Tiger M 702-870-5500

Sign up