Hi. My name is Maggie, I am a new to Biggerpockets. I heard few podcasts on Biggerpockets website about starting out to invest with refinancing with cash out over and over again to buy one house after another house . Few investors recommended to buy house then refi with cash out all money down and buy another house, so my question is: " How can you refi with cash out to get all your money if bank will only give 80% of your equity"? How can you get all equity out to buy another home??, I just dont understand how does it work, can anybody explain the process for me??
I bought my single family home a year ago , I put 20% down, how can I get that 20% out to buy another investemnet home? Is it possible> What are these investors talking about?
I appreciate your help . Thank you. Maggie
@Maggie G. there is nothing out there that will give you a step by step process to do well in REI. This is because books about strategies are written for "general consumption" not specific application. On the other hand, books written about "specific events" are basically a historical recounting of a specific deal. So it is important for you to understand that the way that people do the "cash out refi" or use the BRRR strategy probably does not fit your particular situation. Over time, you might be able to change your current situation to more closely match the examples in the books, but right now there are a key points that don't match up. I believe that is why you are frustrated with the idea of "getting your money out" strategy.
In every one of the cases I have read about or done myself there was an appreciation aspect to each deal. This could be through the market rising, or more likely through "forced appreciation". In your case, you have your primary residence. However, you live in a market where there has been no appreciation and it sounds like you might have negative appreciation. This is the key to why your current situation does not align with what you are reading. The books talk about tapping your "equity" in the property. This is how you get your money out to invest in another property. However, if your home is worth less then what you paid for it a few years ago, then there is no equity to tap.
This is actually one of the corner stones of the appreciation vs cash flow debates that rages on BP. I don't intend to sound mean, but you are in the unfortunate position that many hopeful investors fall into; you have a home, but it is actually a liability and not an asset. It is basically acting like a financial sea anchor and keeping you from making some forward progress.
You are 100% right, "You have to have some money to invest!" However, it does not need to be your money... Without knowing the details of your financial situation, besides selling your house, you have 3 basic options to TRY and get money:
@John Kesner has some very good advice, but you have decided you cannot follow it because your house, the sea anchor, is a "home" not a "property" in your current mindset. Perhaps what you need to consider is to make your current home the rental and moving into the next property as your primary residence. If you make this mind shift you will open yourself up to the ability of getting a property for a lower down payment. I don't know your family situation or how many people are in your immediate household, but you could potentially get a small multi unit as John has suggested and add to your income. This is the "house hacking" strategy: buy a property as a "primary" residence live in it for awhile and then get another "primary" residence and move. After awhile you naturally fall into the BRRR strategy.
As a starting point, house hacking takes longer to achieve financial independence but it is an easier place to start if you already own your primary residence.
Best of luck to you!
Hi. My name is Maggie, I am a new to Biggerpockets. I heard few podcasts on Biggerpockets website about starting out to invest with refinancing with cash out over and over again to buy one house after another house . Few investors recommended to buy house then refi with cash out all money down and buy another house, so my question is: " How can you refi with cash out to get all your money if bank will only give 80% of your equity"? How can you get all equity out to buy another home??, I just dont understand how does it work, can anybody explain the process for me??
I bought my single family home a year ago , I put 20% down, how can I get that 20% out to buy another investemnet home? Is it possible> What are these investors talking about?
I appreciate your help . Thank you. Maggie
You often times do not even need to do "solid upgrades." A combination of these factors mentioned: if you buy it under market value, the market value improves (market appreciation), you've paid down or amortized your loan balance down, or by adding value like rooms, baths, or just upgrades to the property you can significantly increase the value so much so that when you go to cash out to 80% that you'll be able to get all of your original down payment and sometimes your rehab money and some extra too.
The key is the 6 months of title seasoning or ownership, because after 6 months we go off of current market value (conventional financing), for FHA financing its 12 months, and VA - Veterans programs there is no title seasoning you just have to prove the work you did and the conditions that caused value to increase.
Depending on the loan program you intend to use you can definitely maximize your results by planning the value and loan criteria in advance.
Hope that helps.
Lee,thank you so much for your response. Maybe it is not so complicated but it is not easy either. I bought so many books I don't know where to start, I just read ABC of real estate by Ken McElroy, and yes I learn some but the people are rich , they don't tell you how to start with no money or little money. once you are rich it is easy because you get loan with no money down, you buy home with no money down because they know you because you are rich but me? I called few banks and the won't borrow mw any money without 25% down ...no way!! no way around it........unfortunately.
Its definitely a mindset shift Maggie, there are many strategies to obtain bank money. I've cashed out cars for down payment, I've cross collateralized other property (real and personal), and used partners to get the capital to buy. Did you have other assets you could utilize? perhaps even a 401k .....
So if you purchased the property less than 6 months from the date to do the refinance, it is considered delayed financing. The the big catch is that the loan amount cannot be larger than the amount you paid for it. This is in my state of IL though not sure how it works elsewhere
Once you hit that 6 month mark though, it becomes a normal cash-out refinance where you can take out cash based off of the new appraised value
So for example, if we started the refinance process at 5 months, knowing it was going to take 45 days, a normal cash-out refinance can be done
@Maggie G. there is nothing out there that will give you a step by step process to do well in REI. This is because books about strategies are written for "general consumption" not specific application. On the other hand, books written about "specific events" are basically a historical recounting of a specific deal. So it is important for you to understand that the way that people do the "cash out refi" or use the BRRR strategy probably does not fit your particular situation. Over time, you might be able to change your current situation to more closely match the examples in the books, but right now there are a key points that don't match up. I believe that is why you are frustrated with the idea of "getting your money out" strategy.
In every one of the cases I have read about or done myself there was an appreciation aspect to each deal. This could be through the market rising, or more likely through "forced appreciation". In your case, you have your primary residence. However, you live in a market where there has been no appreciation and it sounds like you might have negative appreciation. This is the key to why your current situation does not align with what you are reading. The books talk about tapping your "equity" in the property. This is how you get your money out to invest in another property. However, if your home is worth less then what you paid for it a few years ago, then there is no equity to tap.
This is actually one of the corner stones of the appreciation vs cash flow debates that rages on BP. I don't intend to sound mean, but you are in the unfortunate position that many hopeful investors fall into; you have a home, but it is actually a liability and not an asset. It is basically acting like a financial sea anchor and keeping you from making some forward progress.
You are 100% right, "You have to have some money to invest!" However, it does not need to be your money... Without knowing the details of your financial situation, besides selling your house, you have 3 basic options to TRY and get money:
@John Kesner has some very good advice, but you have decided you cannot follow it because your house, the sea anchor, is a "home" not a "property" in your current mindset. Perhaps what you need to consider is to make your current home the rental and moving into the next property as your primary residence. If you make this mind shift you will open yourself up to the ability of getting a property for a lower down payment. I don't know your family situation or how many people are in your immediate household, but you could potentially get a small multi unit as John has suggested and add to your income. This is the "house hacking" strategy: buy a property as a "primary" residence live in it for awhile and then get another "primary" residence and move. After awhile you naturally fall into the BRRR strategy.
As a starting point, house hacking takes longer to achieve financial independence but it is an easier place to start if you already own your primary residence.
Best of luck to you!
Hey Maggie, another option is to join the local real estate group that have meetings near you. You are going to meet like minded people who were and could be in your position. Maybe you could meet.... Let's be positive...you will meet a person you can partner with. It's not always money you have to offer but time. You are in Chicago land. Offer your eyes and time and partner with someone. I'm now out of the country and would love to have your opportunity were I could go to these real estate group meetings and find partners. People have money find someone and partner up. Find a group and make some new friends that are doing exactly what you want to accomplish.
Why not rent out your home that you live in? Can you rent it out for more than your mortgage payment? Then get an FHA mortgage on a multi family with 3.5% down payment. (House hack) the tenants can pay all or most of your mortgage payment. Now you own two income producing properties. Just another option or tool in your toolbox as Brandon Turner would say. Good luck.
TonyV
Rent out your SFH, buy a 2-4 unit and house hack. I'm a big advocate of that. I've seen dozens of people do it. You often can essentially live for free so you can take that money and save it to buy your next property which you move into and house hack again. You avoid the 25% down as long as you live in it and have an intention to stay at least a year.
Hi @Maggie G., I know I am late to this conversation and you might have already found a solution for your problem. But here is a way to start:
1. Spend a portion of your $5000 in direct mail/yellow letter marketing. or
2. Post bandit signs which says "We buy houses all cash. Quick closing! <phone number>".
This way you can get to know some home owners in distressed houses.
Write up a contract with them and assign it to investors who are in the lookout for such deals. Make sure the deal is solid, like 50-65% of ARV. The investors would be ready to buy it from you for 70% of ARV.
Do enough of these and you will get to accumulate enough funds for your down-payment on your first deal.
There is no quick way to success, unless somebody is scamming you with a useless product they want to sell.
@Teresa DelaMater, that is an excellent strategy, except that different states have different rules and name for how you can do this. For example, in the state of Texas, where you are from, you have to do it as a seller financing (or owner financing) deal (which requires that the seller owner should own the property free and clear), or as a wrap around mortgage deal (which is the closest to a subject-to deal).