Boston, MA · Member since 2017 · 8 posts · 0 votes
Story - My aunt and I own a vacant free and clear Triplex. I am getting ready to buy her out so that I can rehab the property and rent it out. This will be around a $80K rehab, I will be buying her out for $40K and the current appraised value of the property is $325K. After all repairs and occupying I anticipate the property being valued somewhere around $450-$500K.
I am currently trying to decide what would be the best move. Cash out REFI where I will be able to take out about $225K, pay the buyout and rehab and then roll the rest into another property? Or should I use hard money to close the deal and do the rehab and then Cash out REFI later when the value will be around $450K?
Rental Property Investor · New York City, NY · Member since 2015 · 11 posts · 4 votes
7y
I would say ash out refi, pay the loan back on the refi. Then you have the rest of the money to invest in other properties while still owning that original property, and receiving rental income.
Rental Property Investor · New York City, NY · Member since 2015 · 11 posts · 4 votes
7y
I would say ash out refi, pay the loan back on the refi. Then you have the rest of the money to invest in other properties while still owning that original property, and receiving rental income.
Investor · Tampa, FL · Member since 2011 · 2k+ posts · 3k+ votes
7y
I would agree with Arturo above. Your 2nd scenario has too many variables, you'll be paying fees and lender costs twice, as well as higher interest on the hard money loan. Also what if you don't get the refi you were looking for, what if the market adjusts, a lot can happen from the beginning of a project to the end.
I would say ash out refi, pay the loan back on the refi. Then you have the rest of the money to invest in other properties while still owning that original property, and receiving rental income.
I would agree with Arturo above. Your 2nd scenario has too many variables, you'll be paying fees and lender costs twice, as well as higher interest on the hard money loan. Also what if you don't get the refi you were looking for, what if the market adjusts, a lot can happen from the beginning of a project to the end.
Thanks Nick! I didn't even consider possibly not being able to make the refi happen after the project is done. Tons of good points. Cashing out now seems like the safest option.
Lender · San Antonio, TX · Member since 2016 · 1k+ posts · 1k+ votes
7y
@Mo Nelson When interest rates are rising (like they are now), get the long-term loan now and short term loans later down the road. Lock in that good rate now on the refi, and then use all that cash as down payments to fund your short term ventures
@Mo Nelson When interest rates are rising (like they are now), get the long-term loan now and short term loans later down the road. Lock in that good rate now on the refi, and then use all that cash as down payments to fund your short term ventures
Makes so much sense Jason - Thank you for your input. Glad that I sought some advice on this.
A cash out refinance for a multi-family investment property is 70% LTV. If you are wanting to reinvest in more property, I would suggest getting the max value out of the property and then cashing out.
A hard money loan is going to have a high interest rate, but may be worth it as a very short term loan versus the cost of a conventional refinance twice versus once.
A value of $325k at 70% is $227,500 and a value of $450-500k is $315-350k. These values are a huge difference and can result in a cash out difference of $87,500 - $122,500. That is possibly another property or a few property down payments depending on purchase price.
You can always look into a cash out first to make sure you will get approved and start the process prior to borrowing the hard money.