Nashville, TN · Member since 2017 · 12 posts · 6 votes
@Arianne L. I really enjoyed show 233. Thanks for sharing your experiences. I have yet to do my first deal in real estate. At this point am trying to figure what my first move is going to be. I had never heard of delayed financing until your show and am really interested. How did you learn about this option and would you recommend it for funding your first deal? What did you do personally to ready yourself for your first deal? What advise would you give someone starting out? Thanks so much!
@Erin Wilging and other BP members - Great discussion - I learned about this financing strategy a few years ago from a local lender who specializes in investor loans. We will use this strategy with our current lender as well. You might wish to ask @Jerry Padilla for specifics, since he assisted Arianne with her loan as she mentioned in the podcast. Most of the national lenders who specialize in investor loans can help you maximize your first 10 loan spots with FannieMae financing and will understand this strategy. This is a link to the current three-page guidelines specific to underwriting delayed financing loans: FannieMae Delayed Financing Guidelines Within this document is a link to the underwriting matrix which gets into the details of refinancing LTV requirements, etc. Hope this helps!
@Christopher Phillips I like the idea of fix and flips as well as rentals, whether single family or multifamily. I think fix and flips would suit me due to the design aspect of a renovation, but I also think having cash flow of rentals to hold overtime would set me up well in the long run. So perhaps a combination of the two. Again, I haven't jumped into it yet. I'm just trying to education myself and get as much information up front as possible.
Okay. That makes sense. Lots of options available.
Delayed financing is more for buy and hold. To get a property at a discount, you would look for one that needs a lot of work. An FHA or Conventional loan wouldn't work due to the condition. So, you would use cash. After fixing up the place and getting a tenant in place, then you would refinance at 70%-75% of After Repair Value to pull your cash back out.
If a private loan or hard money loan is used to buy the property instead of cash, most lenders would want 6 to 12 months seasoning before refinancing. However, some lenders say that they don't have such limitations, but you have to shop around.
With a flip, you would just fix it up and sell it. So no delayed financing needed there.
@Christopher Phillips Thanks for explaining that. It sounds like it would be a good way to keep cash in my pocket for my next deal. Plus if it's the after repair value I may be able to get more cash out of it then what I put in to it if I do the deal and renovations right. Am I correct in thinking that I could keep repeating this process? I read a little bit about it on the forums and it sounds like not a lot of people are using delayed financing. Is there a reason for that?
That's correct. You can keep repeating it if done properly. It's what Brandon calls BRRRR Buy Rehab Rent Refinance Repeat.
The trick is to get a properly that needs a lot of work so you can get it at a deep discount. Doesn't work for turn key or homes that only need a little cosmetic work since the target is 70%-75% ARV for the refinance. Everything needs to fit in that amount to get your cash back.
Brandon has a very good video on BRRRR that goes through the numbers on real property.
@Christopher Phillips Thanks for the link! That was really helpful. I had heard them talk about this method on the podcast, but that broke it down really well.
@Christopher Phillips@Erin Wilging Getting all of your money out is not possible with delayed financing as far as I could tell. I was looking into delayed financing for my current property that I want to keep as a rental. I knew about delayed financing long before I heard the podcast, but on the podcast, the guest was able to pull all of her cash out. How is this possible, given the guidelines for delayed financing? Specifically this clause from the Fannie Mae website https://www.fanniemae.com/content/guide/selling/b2...
The new loan amount can be no more than the actual documented amount of the borrower's initial investment in purchasing the property plus the financing of closing costs, prepaid fees, and points on the new mortgage loan (subject to the maximum LTV, CLTV, and HCLTV ratios for the cash-out transaction based on the current appraised value).
So if I bought a house for $100k and put $10k into it for repairs. ARV is at $150k. Given this rule, I would be stuck leaving $10k in the deal. How was the guest on the podcast able to get all of her money back including repairs?
If you put $10K (materials and labor) into a $100K property it will be $110K when you're done.
Pulling the money works by getting the property at a substantial discount. If cash out refinance is 74% of ARV, you would need to have purchase, rehab, and closing costs to fit within 74% of $110K, or $81K.
So, in that scenario, you would have to have a max offer of $81K - $10K rehab - $10K closing costs (both directions) and finance costs or $61K max offer.
Hey Christopher Phillips you know of any local lenders that work well with investors that take consideration of the cash flow? I'm looking to finance 2-4 units.
Hey @Christopher Phillips, interpreting the language from the selling guide how could the $10k spent on materials and labor be counted as part of the initial investment?
I was always under the impression that delayed financing wouldn't allow a cash-out to exceed the initial investment, closing and finance charges. So even if a property appraised at $100k and you were all in for $65k initially, that's all you could pull out. Any additional investment would remain in the deal. No?
Your initial investment for cash on cash return $/% is everything you pay "out of pocket" that goes into the investment:
down payment, rehab, closing costs, etc.
You can't do this with turnkey properties. It would need to be BRRRR type properties.
An example:
$100 ARV
Purchase at discount of $30K due to condition. $35K in rehab. $10K in closing costs. Total investment $65K.
Rent out.
Cash out refinance ~75% of ARV or $75K.
If you did everything "cash", that would get your cash back out. If part of it financed, you would pay off your hard money loan and then get your "out of pocket" cash back.
Brandon has a very good video on BRRRR that goes through the numbers on real property.
It's great seeing all of this discussion on here related to delayed financing. I've done one and am in the middle of my second. The biggest challenge that I've had is finding an underwriter who either knows the regulations or will listen to reason. Most of the banks I've talked to will only use the purchase price as their valuation and will not accept a new appraisal, which only allows you to get 70% out. You have to get great deals and it will take you A LONG time and many phone calls to either find a bank who will work with you or find a broker/banker/underwriter who is willing to listen to you and understand what you are doing.
I've been working with a new (to me) broker on my current deal. We've had several calls and emails, and he and his underwriter did not understand the delayed financing regs. They were great about listenting and working with me to get to the point where we are on the same page, now it looks like I'll close in a couple weeks.
Find great deals, be patient and keep at it until you find someone who gets it. They are out there, but you will have to work to find them.
@Christopher Phillips Yes, this I understand, but, in the case of delayed financing exception (done prior to 6 months) it appears that you can pull out no more than the initial investment plus applicable closing costs. That's where I'm attempting to seek clarification.
Depends on the lender. Some will only let you refinance at the original sales price without 6-12 month seasoning. So, you have to shop around for a lender that will do ARV without seasoning.
@Erin Wilging and other BP members - Great discussion - I learned about this financing strategy a few years ago from a local lender who specializes in investor loans. We will use this strategy with our current lender as well. You might wish to ask @Jerry Padilla for specifics, since he assisted Arianne with her loan as she mentioned in the podcast. Most of the national lenders who specialize in investor loans can help you maximize your first 10 loan spots with FannieMae financing and will understand this strategy. This is a link to the current three-page guidelines specific to underwriting delayed financing loans: FannieMae Delayed Financing Guidelines Within this document is a link to the underwriting matrix which gets into the details of refinancing LTV requirements, etc. Hope this helps!
Great thread @Erin Wilging , and I completely agree with you @Carolyn L.. Podcast 233 is a great intro to DFE and @Jerry Padilla has a great overview post from a couple years back that summarizes the requirements and LTV tables based on SFR vs MFR and how many you've done to date. https://www.biggerpockets.com/blogs/5110/42824-all...
The post and the guidelines Carolyn linked to affirm Micheal's point above regarding the limitations of DFE. Regardless of how great a deal you find and the spread you have between you're all in cash vs. ARV, your loan will be capped at your original purchase price + closing costs. So any rehabilitation cost will be money you are leaving in the deal.
My take away from podcast 233 was that @Arianne L was either finding incredible deals that she could refinance at 75% ARV without any rehab or she was simply stating that she was able to get all of our purchase cash back and may or may not have put some money into updating the property.
We are in the middle of a very minor rehab right now and our considering DFE because in this case the benefits for us to get all of our money back now (as opposed to 6 months +) outweigh the cost of leaving a small amount of $ in the deal from the rehab cost. For those who have done DFE before, have you had any difficulties finding a lender who will conduct new appraisal versus basing it on purchase price?