Rental Refi Question

[James Chandler]

Good Afternoon Everyone,

This is my first time posting on BP, I will try to be brief. I bought my first property a little over a year ago and am looking to buy another. I had a question regarding financing and was hoping for some advice on how to proceed. I will explain my current situation below:

I bought a house that needed a substantial amount of work at a discounted price ($93,500) with a plan to fix it up and live in it for five years. The renovation took 4 months and cost about $12,000 total because I did 90% of the work myself. The market in the area has performed well recently and the house is currently valued at $130,000. I had an opportunity a few months ago to live for free, which I decided to take advantage of. Instead of selling my property I decided to keep it as a rental. I am now renting the property out for about a $250 profit a month. After listening to BP podcasts recently I realized I essentially did the BRRRR strategy without even knowing it.

I am stuck on the refinance portion. I recently contacted a local bank to talk about re financing options but they said in order to refinance the property needs to be owner occupied. So that brings me to my current question, I am wondering how to proceed. By looking at the numbers I would qualify for a $32,000 HELOC (at 90%) but apparently I need to be living there in order to take advantage of that?

I would greatly appreciate any advice at all! I am looking to repeat the process on a multi family house in the near future but the owner occupied rules are throwing me off.

Thanks again!

[Matt K.]

Hopefully I can make this simple... it gets asked a lot. 

You CAN do cash out refi on investment property and you CAN do a HELOC (harder to find a lender).

If you buy a house CASH and below apprised value or you do work to increase the appraised value you can get UP TO 80% of the appraised value back out of it. Key being you have no loan on this and it was all cash purchase. This is called delayed financing. 

If you buy w/ a loan (like you did) then you are limited to UP TO 80% of the purchase price. No matter how much appreciation you see you're limited to purchase price for 6-12mo (12 more common) know as seasoning. Once you're done w/ seasoning then it's UP TO 80% of the new appraised value.

Now w/ respect to rehab depending on what you did you MIGHT be able to get exemption and have that cost added to the purchase price. You're more likely though to benefit from the new appraised value though once done (even more so since you did the work).

Also, it's often overlooked but you're going to have new closing costs for the loan.... which probably are going to be a couple grand. Also, appraisal and market values can be different and it might be lower than you're expecting. It'll probably also kill your cashflow.... 

Heloc is going to work pretty much the same way but it'll take into account your current loan amount.