Cash and then Finance?

Question

I am in the process of picking up my first few investment properties. My question is this. Is there any advantage/disadvantage to buying a house all cash and then financing after. I realize the advantage on the better offer to seller side, more interested in the financing side. I am approved for commercial loans, that's not the issue. I have the cash to front on a few properties at a time but definitely want to have them financed in a reasonable amount of time for the sake of leverage. So in short, is this even an option, will it save me or cost me in the end? Thanks everyone!

Rick C. · Answer

@Jordan B. - What are the purchase prices of the home(s) you are acquiring? I ask because I recently purchased three houses in cash, fixed them up, rented them out, then tried to re-fi. A lot of the banks I spoke with were interested, but most would not lend to me because their guidelines have them going off the purchase price, not the appraisal price, for the first year of ownership. That was an issue for me, because my purchase price was lower than their minimum lending levels ($65-70k), but my appraisals would have been high enough to meet the criteria.

Of course not all banks are like this, but if your properties were purchased at a lower price point, then I would check that you lender does not have this same rule.

Of course not all banks are like this, but if your properties were purchased at a lower price point, then I would check that you lender does not have this same rule.

Jordan B. · Answer

@Andrew Syrios you kind of read my mind on that. I do want volume increase but I am starting out with a set amount of out of pocket capital. I was hoping I could buy under value with cash, then cash out, thus not tie up as much of my capital in every deal (80/20). So my best option would probably be to finance and try to refi some equity out as soon as possible?  Thanks!

Upen Patel · Answer

Yes, the same thing. Delayed financing is on the purchase price. If you want to make fix/upgrade, then you have to wait for 6 months to use the new appraised value.

Upen Patel

Mortgage Banker

Jordan B. · Answer

@Upen Patel  My banker mentioned a financing option that sounds like this but he said they would only finance the purchase price not the ARV. Is the option your speaking of different?

Thanks

Jordan B. · Answer

@Steve Vaughan,  thanks for the reply.  Haha, I know what you mean about the "buy more real estate" thing. I've been having these discussions with my bankers and basically trying to say I want to use all of your money and none of mine doesn't seem to fly either!

Steve Vaughan · Answer

Congrats on being able to start with so much capital @Jordan B.!  As a cash buyer, you should be able to secure a better purchase price in a lot of situations I would imagine.

In my experience, a refi is a lot easier to obtain than a mortgage.  I haven't done what you are saying since '07 (owned a home outright, then got cash out) and they did a 'drive by appraisal'.  Those may not exist anymore.  The one issue I had was 'reason for loan' on the app.  I think I went with 'property improvement',   "Buying more real estate" would be looked on favorably I don't think but that's a minor issue. Check your lenders seasoning requirements, if any.  Look up 'BRRR strategies' here on BP. Lots of info there.

Andrew Syrios · Answer

There are two advantages, the first is the seller may be more interested in a cash offer (and you can close quicker) and the second is you don't have to pay interest expenses while you're doing the rehab and leasing. That being said, some banks don't like doing cash out loans (a couple of years ago, it was really hard, not so much now) and if you're going for a lot of volume, this could slow you down by holding up your money in the property.

Jordan B. · Answer

@Larry P.  Yes I should have been more specific, we are looking to buy and hold long term.  Thanks again

Cash and then Finance?

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