Studio City, CA · Member since 2016 · 69 posts · 15 votes
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.
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.
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!
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.
@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!
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.
- 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)
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!)
I just closed a cash deal and am in the process of obtaining delayed financing on an investment property. The lender is now telling me the rate is higher for delayed financing vs. a mortgage at the time of purchase. Can anyone verify if this is true?
@Daniel Smith I'll tell you what I am going to do (haven't quite go the opportunity yet):
Create an LLC and have the LLC lend you a mortgage on the property you are receiving. The reason why this works is because instead of you needing cash or receiving a cash out loan, we are now refinancing a loan – your loan. There no reason to wait any time or have any "whichever is lower" rule come into play. We are just refinancing a loan. Here's how it works:
You create an LLC You buy a home Your LLC gives you a loan for the home. You file the deed for that loan at the county courthouse. You use the money from the LLC to buy and fix up the property. Once the property is completed, your conventional lender comes to refinance the loan. Your conventional lender runs title and sees there is a loan. Your conventional lender refinances you into a new loan, and cuts a check to your LLC in the amount of 75% of the value. Please don't confuse this 75% with a "cash out" amount. The non-cash out LTV on a refinance is also 75%. We are refinancing a mortgage. Your LLC's mortgage. Essentially your LLC has become the bank/hard money lender/etc. However you want to think about it. You get to set the interest rate (it can be 0%) and you get your investment amount back sooner. Some things to think of:
To file a deed at the county courthouse is $100-$150 in cost (depending on which county) And you want that note to be pretty close to 70% of the ARV for the property if you don't want to bring any money to closing. 70% will allow you to roll in your closing costs. If you want it to be at 75% just keep in mind you would need to bring your closing costs out of your pocket to complete the refinance.
@Daniel Smith I'll tell you what I am going to do (haven't quite go the opportunity yet):
Create an LLC and have the LLC lend you a mortgage on the property you are receiving. The reason why this works is because instead of you needing cash or receiving a cash out loan, we are now refinancing a loan – your loan. There no reason to wait any time or have any "whichever is lower" rule come into play. We are just refinancing a loan. Here's how it works:
You create an LLC You buy a home Your LLC gives you a loan for the home. You file the deed for that loan at the county courthouse. You use the money from the LLC to buy and fix up the property. Once the property is completed, your conventional lender comes to refinance the loan. Your conventional lender runs title and sees there is a loan. Your conventional lender refinances you into a new loan, and cuts a check to your LLC in the amount of 75% of the value. Please don't confuse this 75% with a "cash out" amount. The non-cash out LTV on a refinance is also 75%. We are refinancing a mortgage. Your LLC's mortgage. Essentially your LLC has become the bank/hard money lender/etc. However you want to think about it. You get to set the interest rate (it can be 0%) and you get your investment amount back sooner. Some things to think of:
To file a deed at the county courthouse is $100-$150 in cost (depending on which county) And you want that note to be pretty close to 70% of the ARV for the property if you don't want to bring any money to closing. 70% will allow you to roll in your closing costs. If you want it to be at 75% just keep in mind you would need to bring your closing costs out of your pocket to complete the refinance.
Hope this helps...
Why would this be better than a cash out refinance? It's the same LTV, same cash out of pocket. The difference would be how convoluted your taxes will be. And possibly no seasoning period?
I like what you are doing and wanted to know if you actually did this? If so, can you share with me any obstacles that you had (if any)? You can DM me as I have a couple more questions as I am in the process of performing this loan to myself model. Oh, and thank you! Rene