Rental Property Investor · Upper Marlboro, MD · Member since 2016 · 11 posts · 4 votes
hello bp
I found this house I can purchase for 40k it needs approx 20k to rehab. I am looking at approx 65k when rehab and purchase is completed.
I have a 23k unsecured loan, 13k my personal cash, and 47k in credit cards. I was going to buy and rehab this house with the unsecured loan, personal cash, and credit cards.
What would be the suggestion to get the money back that I invested to rehab and purchase,being my debt to income is to high to refinance?
First I will answer your question: The best way to pull your money out after the deal is "seasoned" would be to cash-out refinance. Typically the major banks have a seasoning period where they won't lend you money on the ARV value (After repair value) under a year. You want them to lend you on the ARV because that is the higher value then the AS-IS value. Lets say the house appraises for 100k once finished, then you will hypothetically be able to pull out 80% LTV (Loan to value) So $80,000.00. Otherwise they will only loan you 80% value on the purchase price before year 1, so $32,000.00. Which doesn't help you because you leave your money in the deal.
I have found that the major institutions have a 1 year seasoning period. However I have found that it is only 6 months, so 6 months and 1 day I am performing a cash-out refinance based off the ARV.
Again, if your impatient (Like me) you can find local credit unions that don't have seasoning periods, check out podcast 197 to get your creative mind flowing:)
Or you can decide to go commercial but you won't find the terms as favorable as conventional.
*Important note for conventional: Make sure you have 6 months reserves to refinance out.
Ok wise advise time!
Can I talk you out of using credit cards?! I know this is a last ditch effort, and I applaud your willingness to take risks. But if you can't refi out you will be shoveling money to your cards and the unsecured loan which defeats the purpose of real estate investing.
My advice would be to partner with a HML, for the price range you have outlined (Even though I think the 40k is below minimum loan amounts, maybe they can tie in the rehab for a higher amount?)
THIS way you will be able to spend $0 of your own money, use the unsecured loan (If terms are favorable) and the rest of HM, they will cover rehab costs. Then you get to keep your 13k as a safety net/reserves for the refi:) Plus all the while creating a relationship with lenders for the next go around!
Forgive me if I am credit card adverse, but the +22% interest can get crazy real quick! With HM you're looking at points and 12%. If you do the BRRRR then your tenant will be paying these costs.
So hopefully I offered some insight, best of luck with the decision Cordelia!