So I'm just starting out trying to do BRRRR in the Memphis, TN area. I'm doing a pretty good job of building a team but I have yet to find a loan partner for the cash-out refi. Any advice or recommendations from those experienced with this sort of investing in this area. I've noticed a lot of the buildings are older so my current bank has been reluctant to get involved.
Any help, thoughts and ideas are greatly appreciated
Banks will usually have a seasoning requirement to do a cahsout refi based on the new value after rehab.
Seasoning requirement is usually one year of ownership.
If you work with an alternative source you can get a cashout refi after 30 days of ownership based on the new value after rehab.
Banks will take longer to do the deal may offer a low rate but not the best terms.
Alternative source offer more flexible loans and rates vary based on loan type, ltv, dscr, credit, but they dont require tax returns.
@Nasir El Ameer makes a great point here! A cash out is very different from the delayed financing exception. You can use your own cash to buy a house renovate it, and then refi all your investment capital back out but it is not a cash out refi. If you put the renovation cost on the settlement statement you are able to use the delayed financing exception to buy and renovate and then refinance out your investment capital without any seasoning.
For example if you purchase a property for 50k and put 10k in rehab (the 10k must be on the settlement statement) you can refinance and pull out you 60k in capital or 75% of appraised value, whichever is lower! So if this property appraised for 100k the bank will loan up to 75% but the max you will be able to pull out would be the 60k. If however you wanted to pull out the additional 15k in equity, you would be doing a true cash out refinance and that would require a 6 month- 12 month seasoning period. If you are looking for a lender that can execute a delayed financing refinance, pm I have a few references! Hope that helps!
I have the same question for this area. I'm looking for a lender to do delayed financing in the Memphis, TN area. Any recommendation from the Biggerpockets community?
Hi @Sean Laird I have recently completed two cash-out refinances in Memphis using two different strategies:
1) The delayed financing exception described pretty well by @Stephen Akindona above. This is regulated by Fannie Mae, and you need all purchase and rehab costs due at sale, on the settlement statement, and held in escrow to be paid to the contractors directly. And the catch is, not every lender will know how to properly close a deal like this (and from my research, most don't). We even had a lender (and even a Fannie Mae representative whom they contacted directly during the process!) tell us it was not possible to include the rehab costs in the "initial investment amount," then had a different lender from a personal reference that closed it without issue (rehab costs included). Bottom line is this strategy can work but there are definitely limitations and you need to make sure you are set up with a lender who knows what they are doing (PM me for a reference). For more detailed info, see my project summary post about this experience here
2) The LLC to personal loan strategy. This is the most recent project we just completed and it was a much more intuitive and simple way to get around the seasoning period requirement. High level summary of how it works is buy all cash then put a mortgage/lien against your property for $XX amount (I did purchase + rehab + decent cushion in case of a higher than anticipated appraisal) from your LLC to your personal name. Assuming you are planning for the refinance to be within 6 months, it then just becomes a traditional refinance of the existing loan on your property from your LLC. Refinance cash-out amount cannot exceed the loan amount which is why I usually add a little extra cushion in case of a higher appraisal, then you can actually pocket some cash on the deal on top of getting purchase and rehab costs back if it appraises well. This was much simpler and more intuitive for me, and since the refinance proceeds are non-taxable for your LLC it is kind of a no-brainer. I was up front with my lender before hand about what I was doing as it will definitely make the paperwork less confusing if they know your strategy before hand. For more detailed info, see my project summary post about this experience here
Best of luck!