Pay Cash but then get mortgage?

Question

Has anyone paid cash for a rental property then turned right around and gotten a mortgage at 80/20?

So if I have an opportunity for a deal that makes sense on the numbers but only if I offer a quick close.

I can pay cash BUT I don't want to tie up that cash very long. So has anyone paid cash then gotten a mortgage on the property so they can get money to buy more properties?

Really would appreciate any help here.

Mike H. · Answer

One other thing you might consider is using a hard money lender. I have a couple of hard money lenders that I use and I've asked the question before. If I have to pay cash for a house, will they do the loan right after so I could roll the rehab into the loan as well. Answer is yes.

Then you would free your money up immediately and could roll the rehab costs into the loan as well.  And when you go to refi, it would be a rate/term refi with the lender on the end loan and those can be much easier to get.

You are adding additional costs for closing and hard money fees. But you're also freeing up more of your money as well. As long as the deal is really good, though, I'd much rather preserve my reserves.... :-)

Rob Fordham · Answer

Thanks for all the responses -- very helpful!

David Greene · Answer

I have done this a few times.  CAUTION: the last time I did this the lender (who I have worked with before and was very accomodating) assured me he could underwrite the loan and we even worked out the terms.  Once I purchased the property, his underwriters told him he could not underwrite in that county.  I am now stuck looking for a portfolio lender in Pinal county AZ and not having much luck.  So please be careful you make sure your lender can actually do the deal and his done his/her due diligence.

John D. · Answer

I've done 5 of these in the past year.  I am typically getting 80% of the cost of the property (including well documented rehab costs), or the appraised value, whichever is lower. This cash-out refi (sometimes called delayed financing) typically takes 30-45 days as a conventional loan.

Ali Boone · Answer

I haven't personally but I know a lot of people who have. It's no problem, usually, as long as you are working with an investor-friendly lender. That will make all the difference.

Daren H. · Answer

I just recently did a delayed financing cash-out. I purchased the property all cash. Did a very small rehab then turned around and cashed-out into a conventional 30 fixed rate mortgage all within about 30 - 40 days. I received 70% of the new appraised value for the cash-out. If I had waited 6 months I could have gotten 75% of the appraised value. If you are trying to get your purchase price back ASAP while getting cheap long term financing as well, delayed financing is one option. IMO, this option tends to works best when you are purchasing at a deep discount with a small rehab and a much higher after repair value. One way to look at is that you want 70% of the new appraised value to be at least equal to or greater than your purchase price.

Quick Example (not including closing costs for simplicity): Purchase price $80K cash, $5K rehab = all in at $85K cash. Go to bank for delay financing cash out immediately after rehab. Appraisal comes back at $120K. 70% of $120K is $84k. You will cash out $80K (the entire amount of your purchase price). Again, rehab out of pocket will not be considered. You have now bought the property while only coming out of pocket for the $5k rehab + you’re closing costs (which sometimes can be rolled into the loan as well on the refi side). IMO, this doesn't work well with a large rehab. Figuring the ARV range is critical. Unlike my example, my appraisal came in a little lower than I expected. I still purchased the property with the equivalent of a 10% down payment and my rehab was very small.

Jeremy Tillotson · Answer

@Rob Fordham welcome to BP, yes people do this all the time. It may be easier to get a HELOC on it but yes people do it frequently.