Minimum Amount for Cash Out Refi?

Question

Hi Everyone,

I'm in the works of buying a 2/1 SFR in suburban Indiana for $20k cash, with anticipated $10-15k in rehab, ARV of $65k.

Pretty much looking at a BRRRR method here, but my question is--is there a minimum dollar/loan amount required for the refi portion? Or, if I wanted to pull out just $20k to do an identical deal, would that be an option?

My question may be a little premature since I don't even have the property yet, but I'm playing chess with myself and trying to think ahead/map out my strategy and goals.

Thanks for reading,

- Derek

Derek Luttrell · Answer

Account Closed my lender gave me a $50k minimum if were to finance an investment property, so I wasn't sure whether or not that minimum would also apply to a refi, or if those are viewed as two entirely different things. I could have asked them, but I usually get quicker, more diversified answers on BP :)

I am looking in Anderson, IN. I was looking in Indy, but my price point was putting me in rocky neighborhoods. I grew up in Fort Wayne, IN and Anderson is a similar blue collar town with a higher renters : owners ratio. Where are you under contract?

Joel Florek · Answer

@Derek Luttrell Look at doing a secured line of credit with a commercial lender. I am doing this right now on a property I bought only a few months ago. Bought it for $54000 and am getting a line for $50,000 based on the appraisal which we expect to come in at $65k or $75k. I have done nothing to the property but did purchase it in cash so the seasoning rules didnt apply according to the bank and they could provide a line up to 75% of the appraised value. You should have no problem pulling all of your money out of the property if that is the way you wanted to go.

Another great thing about this line is its at 5%, interest only payments required, $800 to close on the line and an annual fee of $150 to maintain it.

Vishal Didwania · Answer

@Derek Luttrell I am looking to invest in the South Bend area and just spoke to a few lenders on the phone yesterday. I agree with @Andrew Johnson that with a lower loan amount you are running into some limitation with the fees if you are doing a residential loan. I was told by the mortgage banker that there are rules in place where the closing cost fees cannot exceed a certain percentage of the loan amount although I'm note sure if this is true or what is that threshold. For commercial loans at least one bank told me that they don't really have a minimum for investment properties although they do process each on a case by case basis and may not approve it if too low or not worth it (not his words). The ARV is tricky. Speaking with a fellow investor in South Bend who purchased and rehabbed with all cash, he had a tough time getting a decent appraisal and it varied significantly between 2 different appraisers for the same property. That made it really difficult for him to do a cash out refinance.

Andrew Johnson · Answer

@Derek Luttrell In your game of chess the next move is to ask yourself what happens if the appraisal comes back even a little low. I'd also double-check with your lender than it a non-owner occupied investment property you're okay with an 80% (not 75%) LTV. If it's a 75% LTV then even your $65K ARV won't get you to a $50K mortgage. You should spend some time search BiggerPockets for people decrying "evil appraisers" who foiled their plans with their "low appraisal". It's usually always tied to a BRRRRrrrRRRrrrRRRRRR strategy (I never know how many R's to use) and all of a sudden they can't pull out the money they thought they would be able to. And this is all happening, as a side note, in one of the better lending environments in history.

Right now your posit is that you can buy for $20K, put in around $12.5K and get $65K out. You're basically assuming that you can double your money. I'm not going to say that's not possible but I have to admit that I there is a little bit of an eyeroll when someone is predicating their REI chess game on a "double your money" scenario. And if you don't double your money it literally destroys your current financing strategy.

Right now your posit is that you can buy for $20K, put in around $12.5K and get $65K out.  You're basically assuming that you can double your money.  I'm not going to say that's not possible but I have to admit that I there is a little bit of an eyeroll when someone is predicating their REI chess game on a "double your money" scenario.  And if you don't double your money it literally destroys your current financing strategy.

Account Closed · Answer

@Derek Luttrell Yeah, I'm not sure as I've never done it, but I would imagine they would view a refi in a similar manner.  I'm under contract near South Bend.  I was actually born in Anderson, but we moved when I was three so I don't know much about the area these days...

Account Closed · Answer

@Derek Luttrell  Have you called your lender?  They should be able to give you an answer relatively quickly.  I can't imagine there isn't a lender willing to finance 80% of the ARV assuming it appraises at $65k.  Where in Indiana are you buying?  I also live in Chicago and have a home under contract in Indiana.

Lee Smith · Answer

@Derek Luttrell MOST lenders want to loan 50k or more. There are some lenders who will lend less than this. I have a list, so shoot me a PM with your email and I will share it.

Derek Luttrell · Answer

@Joel Florek is there a limit that you know of for the number of these lines of credit you can have? Is your goal to pay down that $50k credit line as quickly as possible, or have the tenants pay it down gradually with their rent payments, and get a different credit line for the next property (if that is even possible).

Joel Florek · Answer

@Derek Luttrell This will be for a property in Northern Michigan, but using part of the line to fund the closing on an 8 unit in south bend. Check out Old National Bank and talk with their commercial team and see what they can do to help you.

Vishal Didwania · Answer

@Joel Florek I didn’t know you could do a secured line of credit through a bank on a cash purchase. That’s great news and really opens things up. Thank you.

Minimum Amount for Cash Out Refi?

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