How to Leverage with Cash Offers

Question

Hello BPers,

I am still new and learning every day. My question is about financing a deal with a cash offer. I wondered how to pull out the cash and re-invest in another property. I recently had a discussion with @Joe Villeneuve about this, but not sure if I understood him. I currently own an SFH in Ohio, free and clear. And I also own a duplex with a mortgage payment.

If my question is vague and not precise, please let me know.

Thanks in advance,

Amir

Jessica Von Zastrow · Answer

Hi Amir!

As a Loan Advisor, there are a few options that you may want to consider when it comes to financing a deal with a cash offer:

• A cash-out refinance: This involves taking out a loan on the property you own free & clear in order to access the equity in your property. You can then use this cash to buy an investment property or  make a down payment on your next purchase.
• A home equity line of credit (HELOC): A HELOC is a line of credit that you can borrow against as needed. The draw period of a HELOC is the time during which you can borrow against the line of credit and make interest-only payments. The repayment period is the time during which you must begin repaying the principal balance of the loan in addition to the interest. This is a good option if you want to draw from the equity in your home multiple times. 
• The BRRR method: As mentioned above, the BRRR method is a great way to make your money work for you! It involves purchasing a property, making improvements to increase its value, renting it out, and then refinancing to pull out the equity. Depending on your investment strategy, this could be a good place to start since you already have equity in your current property!

If you have any additional questions or would like to discuss your specific strategy in more detail, I'd be happy to help.

Nathan Gesner · Answer

I agree with Nicholas. Go talk to a lender and explain that you want to cash out some equity. They'll walk you through the process to see how much you can take out and what it will cost you.

This is common in the BRRRR method. You pay cash for a property. You fix it up so it appraises at a higher value. You then take out a mortgage that gives you back all your cash, hopefully some extra cash, and then go buy the next house. This requires the math to work! You have to buy a property below market that can be renovated and then appraise at a value high enough to get all your cash back out, plus the house has to cash flow as an investment.

I highly recommend you read up on it and fully understand it before you get in too deep.

Nicholas L. · Answer

@Amir B.

if you own a property free and clear, you should be able to do a cash-out refinance. the way this works is that the bank will put a mortgage on the house and give you a loan, minus closing costs.

simple example - you own a house worth 100k free and clear.  the bank gives you a mortgage for 75k, minus closing costs of 5k.  thus, they put 70k in your bank account.  you can do whatever you want with this 70k.  it's cash, it's yours.  buy another house.  put it in a savings account.  etc.

hope this helps.

Chris Davidson · Answer

Getting a line of credit. To tap into equity in a property you either can refi or get a line of credit. Both have pros and cons. Talk to a lender and see what fits your needs best.

Secondly if you don't want to hold the property you can always sell, but doesn't sound like that is in your plan.

Amir B. · Answer

@Chris Davidson Sounds good. Will do. Correct, I like to hold on to it for now. I have owned it for five years. Thanks.

Jacob Sloop · Answer

Talk to a local lender.

Cash out refi or HELOC

Both have fairly high rates currently so make sure the payments work for your strategy ahead of time.

Also is this your primary residence?   HELOC's on rentals/non owner occupied properties are getting rarer these days.

John Morgan · Answer

@Amir B.

I’ve bought 3 houses with cash offers, but to close in 3 weeks. I had a rental owned free and clear. Then when I found a deal I couldn’t pass on, I made a cash offer to close in 3 weeks with the seller. Then I would ask my lender to do a fast cash out refi on my paid off house. My lender was pretty fast and I closed within 2 1/2 weeks on them. Then close on the new one I was buying. I did this 3 times to get great deals. Kind of a weird way to do it, but I found sellers would give me really good deals for cash offers. And all 3 of them didn’t seem to care about waiting 3 weeks to close.

Amir B. · Answer

Besides refinance, what is another strategy?

Thanks

How to Leverage with Cash Offers

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