Los Angeles, CA · Member since 2009 · 717 posts · 50 votes
Hello, I'm looking to purchase a Duplex for 30k cash. It will need about 10k in rehab. After I fix it up, will I be able to refinance for about 70% of the ARV? I would of bought this property with financing in the first place, but I don't have 2 years of work history, just 8 months so it wasn't possible to get financing. But, since I'm buying this with cash, will I be able to refinance? I've heard it was easier to get approved if you're looking to refinance. Advice would be appreciated. Thank you!
While I totally agree that the lending market has changed drastically in the past two years... if the subject of refinancing is approached correctly... there are many lenders who will do these deals.
The key is finding the right lenders and creating a relationship with them prior to needing their money.
Many investors have either tried to obtain funding using mortgage brokers or by approaching large institutions like BofA or Wells. This doesn't work. These banks are too big and in almost every case you will be speaking to residential loan officers who in my experience don't know what to do with investors.
The approach that has allowed me to obtain funds almost at will... yes even in todays market, is to create relationships with commerical loan officers of small local banks. These banks will have Savings and Loans or Community Bank in their name... and they keep their loans in their portfolio, allowing them more flexibility in their underwritting.
I will post an article on this subject later today outlining the steps every investor should take to create these critical lender relationships.
I found that refinancing can be more challenging than using purchase-financing. Naturally, it will depend on your credit score, LTV, employment history and status. Possibly a lower LTV on a rehabbed house should be easier to obtain.
You're doing a cash out refi. These are difficult. Even a rate and term refi where you're just paying off an existing loan is difficult, cash out even more so.
If you want to use a new appraisal, plan on waiting at least one year. You might be able to do it sooner, but you'll be stuck with the purchase price as the value.
Even after a year, you'll need good income, good credit, and a good debt-to-income ratio. The lender may or may not let you count the rent as income. Assume they will not.
Jon, you painted a dire picture. Would private money be easier? I know that's a more inefficient market, but are cash out refis getting done with private money?
Actually, it would be better to borrow from a private lender to make the original purchase, then do a rate and term refi. Be sure the private lender is using an LLC rather than doing the loan in their name. I have a loan I'm trying to refinance right now and we tripped on this issue. One lender, Flagstar, would have done the loan if the lender had been an LLC, but wants a year seasoning since its an individual.
Not sure it would work, but it might be better to put the cash into an LLC, and then have the LLC lend you the money. Might have to have someone you trust or a lawyer run the LLC. Again, not sure that would work or not.
The lending environment is brutal right now. I also have a loan outstanding (IRA money) that the borrow is having a hard time refinancing. In that case, the appraisal is coming in MUCH lower than expected.
While I totally agree that the lending market has changed drastically in the past two years... if the subject of refinancing is approached correctly... there are many lenders who will do these deals.
The key is finding the right lenders and creating a relationship with them prior to needing their money.
Many investors have either tried to obtain funding using mortgage brokers or by approaching large institutions like BofA or Wells. This doesn't work. These banks are too big and in almost every case you will be speaking to residential loan officers who in my experience don't know what to do with investors.
The approach that has allowed me to obtain funds almost at will... yes even in todays market, is to create relationships with commerical loan officers of small local banks. These banks will have Savings and Loans or Community Bank in their name... and they keep their loans in their portfolio, allowing them more flexibility in their underwritting.
I will post an article on this subject later today outlining the steps every investor should take to create these critical lender relationships.
I may be missing something here, but since the Duplex will be purchased for cash. Then fixed up with more cash.
If you are looking for financing of these amounts then refinancing you are in the situations spoken to in the previous posts.
But if indeed you do purchase for cash then you can not refinance as it was not financed in the first place. The option then would be an HELOC or home equity line of credit. These are also best through the smaller local banks or credit unions. Amount available to you will depend upon the ARV with the sticky point of the length of work history which may still be a problem. Being a Duplex some banks may not allow a HELOC unless you are going to be living in one side.
Even some local banks in my area have had there commercial investments curtailed. Peter gives good advice about local banks though. That is where you MAY find a HELOC or a commercial loan. It is possible to also do blanket financing on the commercial end with some local banks, but from my experience in my most applicable market at least they want 5 properties minimum and preferably more.
I think you need to make sure that you are buying right and creating actual value with the rehab, and then sell the duplex to another more passive investor as a turnkey property for a decent gain. Make sure you establish an LLC and that it takes title before you sell it so that you can get all tax benefits of a company.
Talk to a CPA that specializes in RE to find out what to do to reduce it and repeat the process. As you gain more property and thus income, you will likely be able to get financing based on your company's income, not your personal situation.
Go talk to local commercial officers now to find out what would be best to do. I would also suggest that you establish an account with the bank or banks you want to do business with, both personal and company. If they see the income coming in to their accounts it should be easier to get the loan eventually.
Remeber when times get tough it forces the tough to get creative.