Buying cash or financing

10 Replies

Hi Everyone,

I am looking into buying my 1st rental property and my goal is to constantley get the money out and buy the next one, so my question is when you take a loan the bank usually requires you to put down 20-25% even if you are getting a great deal, so lets say I am purchasing a property valued at 200k but I am buying it for 100k the bank would only fund 75k, how long would I have to wait to refi and get the full 100k if not more out being that the value is really 200k and if they are willing to loan you 75% that should be 150k that I can get out, and is it quicker to pay the 100k in cash and then go to the bank and ask for a refi would that be an easier/quicker way of getting my money out.

Thank you

Originally posted by @Naftali Green :

@Nathan G. Thank you do you know if there is a waiting period from when I buy till when I can refi out?

You'll typically have to wait six months. Talk to your lender for confirmation.

 

Possibly talk to some lenders first and find out what programs they have available.  You'll likely get a better deal on purchase if you're paying cash, in any event, but it can be difficult to find a lender willing to cash-out refinance on an investment property -- at least that's what we've found.  The ones that did offer it were more local banks, but we found they had higher rates and fees involved, so I think it's worth researching the lenders first to know where to go and understand the costs involved, and they can tell you for sure how long you'd need to own it first -- I think it's different depending on how many mortgages you already have.

Originally posted by @Naftali Green :

@Eric James. Thank you I understand that it was just an example of getting it at 50% just to make my point across, even if I pay in cash and put in work how soon can I refi out

If you want to refi out based in the new ARV you may still need to wait 6 months. I use portfolio loans to get an immediate refi when I buy cash. Some banks will do that with a portfolio loan.

 If you're doing work to the property that will improve the value, then there is no seasoning period for which you need to have the loan. 

Purchase Price:    $100,000 +

Cost to Improve:     25,000

Total Project Cost $125,000 * .25 = $31,250 Down Payment

Then, once the project is done, you can simply refinance based on the new appraised value to pull out your equity, as long as you have income to cover the proposed debt service (i.e., a tenant paying rent).  The new appraised value may be $200,000 or higher.

Loan Amount:  $  93,750

Cash-Out:        $  50,250

Perm Loan       $144,000

I've been a CRE lender for 20+ years. Now I manage my portfolio of clients at a mortgage advisory/broker company in Vienna, VA. Do all banks do this? The answer is that it's simply not a requirement to season a loan if there's been improvements to the asset. That said, however, there are some Loan Officers that are unaware, so they employ the "lower of cost or market" across the board without considering that the property's value has been increased significantly after improvements.

That's why it's so important that you have strong advocate negotiating for you, or mentoring you.