Can and should I CASH out?

Question

I bought an off market 3 plex that was used for one family to live out of, they owned all the units and lived in them all. I bought off market for what I am pretty sure was about 70k less then I thought it was worth as a house in the area. I bought it for 370k and have all the units rented out for year contracts at a total of 3850.00 a month. Also, my insurance company after looking at it, had me insure it for 511k calculated rebuild cost, it also sits on 2/3rd acre in a nice area...

I think i know my answer but before I go look around I wanted the opinions of others, Can I do a cash out refinance now that I have it rented even though its only a 3 plex and not a commercial property, according to my bank who classifies them as 4+? Any additional info or opinions would be appreciated !

thanks in advance

Matt

Nicholas Covington · Answer

@Matt Hummel the main thing lenders look at insurance wise is that it covers at least the cost of the loan and the policy is set to be at replacement costs. Your company might have over-insured the home, but a lender would not care about that nor would an appraiser. A bank normally does not allow a second appraisal done, that would be a question to ask them if they will do a reconsideration of value but that normally means working with the same appraiser.

If in fact, you want another appraisal done then you might be looking for a new lender but I would not go with the expectations that you are going to get close to the 511k. Might be better offer asking a Realtor friend to run some comps for you.

There are in fact many that are able to do a cash-out refinance on this property close to 70-75% of value.

Brian Lipszyc · Answer

@Matt Hummel I used to work for Progressive Insurance and can tell you that rebuild cost is typically not going to match appraised value.  Material costs, labor costs, demolition costs are all factored into what an Ins co. will value a property at.  Only a lender (and their appraisers) can tell you what they're willing to value it at for LTV purposes.

Jerry Padilla · Answer

@Matt Hummel

Have you made any improvements to the property to force appreciation?

The insurance quote is irrelevent. An appraiser will look at comparable 3 units in the area. If you have owned the property for less than a year, the appraiser may very well want to see that you made improvements to the property to increase the value. If you made no improvements you may not get the value that you are hoping for.

For conventional financing you will be able to take cash out up to an LTV of 70% after 6 months of owning the property, based on the new appraised value.

Brian G. · Answer

@Matt Hummel you should be able to do a cash-out refi with a conventional lender @ 70%LTV if you've owned the property for 6 months or more. Alternatively, you should be able to do a cash-out refi with a portfolio lender at a higher %LTV with less favorable terms no matter how long/short you've owned the property if it is stabilized. Finally, if you have 3 properties or less including your primary, you could get a HELOC from Pen Fed @ 80%LTV on this property, 12 year draw at variable prime + 1%. Sounds like a great conundrum to have!

Caleb Heimsoth · Answer

@Matt Hummel what your insurance company says it’s costs to rebuilt is useless. It appraised at purchase for what you paid for it, so unless you did major improvements it’s probably worth about what you paid

Matt Hummel · Answer

I agree the 511k would be high, i was thinking about 470k or so. If went there i could get back about 50-70k of the 92k i put down back. I would still be getting a good cash flow that way.

Matt Hummel · Answer

@Brian Gerlach So the appraisal i had done before i bought it obviously came back at my purchase price. How do I navigate this? Id like to use my same bank, can i just asked for it to be re done, and tell them what my insurance company gave me for a quote or what? Or do i go find another bank and have a fresh set of eyes look at it?

Can and should I CASH out?

Most Popular Reply