Cash-Out Refi vs. Delayed Financing: Can't decide!

16 Replies

I can't decide whether it's worth it to immediately do a Delayed Financing cash-out upon completion of rehab, or whether to wait 6 months and do a regular, cash-out refi. If I'm reading the eligibility matrix correctly (what a document! oy), the LTV's available for both products are the same. That is, 75% LTV for a SFR, investment property.

However... 

Delayed Financing Pros: can get house appraised before tenant moves in

Delayed Financing Cons: cash-out amount is limited to initial purchase price + fees

Am I missing anything? Theoretically, it seems that if the house was a really good purchase and the rehab was done well, it might make sense to wait 6 months for a regular refi, because the ARV is going to be higher than the initial purchase price + fees.

What would you do?

@Daniel Smith

How long do you plan to keep this? I'm assuming it's a rental. 

Agreed with your theory. If you bought it right and it cost quite a bit to rehab, it's probably best to wait. So you can get most if not all of your money back out, and use that money to buy another one! 

@Daniel Smith

If you can lock down a great rate and term now it could be better than waiting 6 months.  Or if you don't need the cash back right away wait until you can get the most amount of cash back.  

Hi @Daniel Smith ,

Erm, rental income can't be counted on a refi unless there's actually a tenant there. 

@Daniel Smith - You could do this deal with a commercial loan and bypass the six month seasoning requirement. Just a thought. 

@Daniel Smith I just faced this same situation.  We chose to go ahead with the refinance before the seasoning period just to secure the low rates that are currently available.  I expect rates to increase but have expected them to for quite a while now and they haven't.  My property was appraised at 124k and then the appraisal company did what they called a "desk audit" and lowered that value to 105K.  While I was disappointed to say the least, I still got back a portion of my cash but with a lower loan amount and a locked-in interest rate, my cash flow is pretty good now.  I guess the two advantages of doing to quicker option are if you have any monthly carrying costs currently that you'd like to get out of and knowing the rates that are available.  However if you may be able to get your cash back and still have solid cash flow; that's hard to beat.  I guess it comes down to your strategy and tolerance for leverage versus need for cash.  Do you want to maximize leverage and preserve cash or maximize cash flow and have less leverage?  Just one way to look at your situation.

     I'm sticking with conforming loans and then will use commercial when I need to.  Good luck!

Originally posted by @Chris Mason :

Hi @Daniel Smith ,

Erm, rental income can't be counted on a refi unless there's actually a tenant there. 

Chris, I don't see that Daniel was at all concerned about the rental income being counted. 

But, is Daniel correct about the 75% allowable Delayed Financing? Who does that? As far as I know, Fannie Mae specifically limits it to 70%. Cheers...

Does anyone have any concerns about getting the house appraised while it's occupied by a tenant? That was one pro in favor of delayed financing; it could be done without disturbing anybody living there. 

My first question is how quickly do you want to reinvest the money, and how many properties do you want to acquire over a 12 month period? If your goal is to grow your portfolio at a quick pace then I would pay the higher rate and cash out up to 75% of fair market value by refinancing though local commercial lender or private equity firm that doesn't have a value seasoning restriction. If your goal is to buy 1-2 properties per year, I would wait 6 months and cash out based on fair market value at the best rate/term.

Bob - I want to buy a lot and scale quickly. However, I have the cash on hand to do this regardless of which refi option I choose. Are you saying that a seasoned refi will offer me a better rate than a delayed refinance? (Assuming the prime rate stays the same over the next six months)

@Daniel Smith also take into consideration loan costs. When I have looked, cash out refi costs are always high, with little to no credits as compared to a regular refi or purchase. I can't speak on costs for delayed financing as I've never looked into it, but just another factor to consider.

It also seems highly likely there will be a quarter point increase in fed rate this December. Another point to consider.

To be honest the interest rate isn't a big concern for me. The Prime rate could go up a quarter point, half a point. These are such small mortgages I'm not too concerned about that. 

My inclination is to get the house appraised on Day 1 and do a delayed financing. That way the house looks its best for the appraisal (just newly rehabbed) and a tenant won't need to be disturbed.

@Daniel Smith I wouldn't worry too much about the tenant being disturbed. Just give them advanced notice.

Here are some factors to consider:

- DFE only goes up to 70% of market value or your acquisition cost whichever is lower while a cash out on a non owner SFR is up to 75% so that extra 5% LTV could be worth it. However from 5-10 properties on the reg. cash out refinance from fannie mae your LTV's are reduced by 5% as well so it depends on how many financed properties you have because this 5% LTV advantage could quickly come to parity.

- Like another person mentioned you'll need an actual tenant in the property if you'd like to use rental income (on refi you need actual tenants, on a purchase you can use projected/hypothetical income). Income is calculated at 75% of gross - PITIA = net income for qualification purposes.

- if you've created a lot of equity and want to pull it out it may be worth waiting till that 6 month mark. It depends on how quickly you finished your acquisition and rehab of the property and if you borrowed money and are paying a carrying cost for those funds or not

- if there is a tread of higher comparable sales and pending sales coming online soon that you know of or if supply is going down and demand is coming up you may want to wait to get a bigger loan on the cash out refinance

- DFE may be better if you want a high velocity of your money so you can redeploy it else where quicker instead of waiting around 6 months for each one (twice a year as opposed to 3-4 or more deals per year with DFE, theoretically)

thanks, Albert. 

As it happens, delayed financing can be up to 75%. Multiple loan specialists have told me this and the eligibility matrix seems to agree (please chime in if the info is wrong here to your knowledge!)

What I was told agrees with Albert. 75 percent if loans 1-4 and 70 percent on houses 5-10. 

Free eBook from BiggerPockets!

Ultimate Beginner's Guide Book Cover

Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks and techniques delivered straight to your inbox twice weekly!

  • Actionable advice for getting started,
  • Discover the 10 Most Lucrative Real Estate Niches,
  • Learn how to get started with or without money,
  • Explore Real-Life Strategies for Building Wealth,
  • And a LOT more.

Lock We hate spam just as much as you

Join the Largest Real Estate Investing Community

Basic membership is free, forever.

By signing up, you indicate that you agree to the BiggerPockets Terms & Conditions.