If I paid all cash for a property plus its rehab costs and was able to complete all of the renovations within 2 months, increasing its ARV by 25% in the process, how soon after the renovations were complete would I be able to take the cash out of the property and refinance? This would be my first deal and I have a credit score in the 740-750 range and zero debt.
You could refinance immediately if you wanted it based on the original sales price. Otherwise if you want conventional financing that is based on the new appraised value it is 6 months.
If it's your first deal I would not expect the rehab to take only 2 months unless you already have a team in place or it's just a cosmetic rehab in which case 25% will be difficult unless you bought it off-market.
You could refinance immediately if you wanted it based on the original sales price. Otherwise if you want conventional financing that is based on the new appraised value it is 6 months.
If it's your first deal I would not expect the rehab to take only 2 months unless you already have a team in place or it's just a cosmetic rehab in which case 25% will be difficult unless you bought it off-market.
So are you saying that if I only bought properties in need of cosmetic rehab (no gut rehabs) and was able to complete the renovations in 1-2 months, I could be potentially buy 6-12 properties in my first year?
If you have enough cash laying around to buy 6 outright including repairs, then maybe you could do ~9 per year. I'm guessing that is not the case. You need to wait 6 months to be able to get the increased value included in your refinanced amount.
Before trying to do 12 properties your first year I would recommend making one deal work properly and according to your plan. Figure out which market/sub-market you want to target, decide how you will do marketing to find such a great deal on a cosmetic rehab, and then get a team in place (agent, contractor, property manager).
Leverage works both ways, if you have a positive return it amplifies it. Same principle applies if things go south. I would look to learn quickly and acquire slowly rather than the reverse.
Ok thanks for the advice. So basically I should spend the first year learning the ins and outs, making sure that my first 1-2 deals are perfectly executed, then start ramping up my pace of acquisitions in years 2-3?
The typical waiting period for a cash out is 6 months, when using financing, initially.
You can do sooner with delayed financing if you paid cash - with the restriction of pulling out a max of the purchase price plus closing costs prior to 6 months. Delayed financing you still go according to the current appraised value of the property.
If you include on your closing statements (which vary state to state - HUD-1/ALTA statement ) the renovation costs - and have them charged at closing...... This renovation cost now becomes an initial closing cost and can be included with the max that you are able to pull out prior to 6 months.
Okay thank you. So as I understand you can only pull 70-80% of the value (whether that’s determined by the appraisal in 6 months or the total purchase price + renovation budget in one month). Is that true? And if so, essentially pulling out prior to six months (even when including rehab costs) means you’ll only get back a max of 70-80% of your initial incestment. Is that’s true?