I bought a house! Now how do I get the money out to BURRRR it?

Question

Hello! Thanks to you guys I just purchased a rental property in Minnesota! It's a SFR bought for 60k cash. It  appraised for 90k. My questions are: 1 - What are my options to get the money out to do the BURRRR method? 2 - Can anyone recommend a bank (local or national) or lender that would be able do the financing? Thanks so much! Couldn't have made this happen without Bigger Pockets!

Matthew Kern · Answer

You can look at doing a HELOC on the property. Thats what I did with my duplex, that was under a conventional loan.

Tim Swierczek · Answer

Deferred financing is treated at 75% LTV Single Family and 70% LTV multi-family, but yes it could work provided it can be proved that all the cash used came from the borrower (not friends, family).  Here are Fannie's guidelines:Borrowers who purchased the subject property within the past six months (measured from the date on which the property was purchased to the disbursement date of the new mortgage loan) are eligible for a cash-out refinance if all of the following requirements are met.

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Requirements for a Delayed Financing Exception

The original purchase transaction was an arms-length transaction.

For this refinance transaction, the borrower(s) must meet Fannie Mae’s borrower eligibility requirements as described in B2-2-01, General Borrower Eligibility RequirementsThe borrower(s) may have initially purchased the property as one of the following:a natural person;an eligible inter vivos revocable trust, when the borrower is both the individual establishing the trust and the beneficiary of the trust;an eligible land trust when the borrower is the beneficiary of the land trust; oran LLC or partnership in which the borrower(s) have an individual or joint ownership of 100%.

• a natural person;
• an eligible inter vivos revocable trust, when the borrower is both the individual establishing the trust and the beneficiary of the trust;
• an eligible land trust when the borrower is the beneficiary of the land trust; or
• an LLC or partnership in which the borrower(s) have an individual or joint ownership of 100%.

The original purchase transaction is documented by a settlement statement, which confirms that no mortgage financing was used to obtain the subject property. (A recorded trustee's deed (or similar alternative) confirming the amount paid by the grantee to trustee may be substituted for a settlement statement if a settlement statement was not provided to the purchaser at time of sale.)The preliminary title search or report must confirm that there are no existing liens on the subject property.

The sources of funds for the purchase transaction are documented (such as bank statements, personal loan documents, or a HELOC on another property).

If the source of funds used to acquire the property was an unsecured loan or a loan secured by an asset other than the subject property (such as a HELOC secured by another property), the settlement statement for the refinance transaction must reflect that all cash-out proceeds be used to pay off or pay down, as applicable, the loan used to purchase the property. Any payments on the balance remaining from the original loan must be included in the debt-to-income ratio calculation for the refinance transaction.Note: Funds received as gifts and used to purchase the property may not be reimbursed with proceeds of the new mortgage loan.

The new loan amount can be no more than the actual documented amount of the borrower's initial investment in purchasing the property plus the financing of closing costs, prepaid fees, and points on the new mortgage loan (subject to the maximum LTV, CLTV, and HCLTV ratios for the cash-out transaction based on the current appraised value).

All other cash-out refinance eligibility requirements are met. Cash-out pricing is applicable.

Michael Ablan · Answer

@Sarah M.  I believe that's only allowed if you're doing rehab to the property.  And then you need to include the rehab in the HUD-1 at closing so that your "purchase price" is at the ARV value.  It sounds like it's too late for that unfortunately

Sarah M. · Answer

What about Deferred Financing? Is that something I can do?

Sarah M. · Answer

Hi Micheal - we closed in Nov... so just a month, really. Good advice! I'll look into local banks!

Sarah M. · Answer

Thanks! I reached out!

Tim Swierczek · Answer

@Sarah M. It is correct for conventional loans you must have 6 months of ownership.  @Michael Ablan is correct in stating the terms are worse for commercial but with rates rising most the commercial lenders I work with are lower than what you would see on Conventional cash out investment loan that is that small.  Conventional loans price higher for each of those items and a loan amount below 100K would jack the terms on conventional.  I would suspect you would see lower rates on a commercial with similar fees the biggest difference is that you would be subject to a 5-year rate adjustment and a 5 or 10-year balloon.  I'd be happy to discuss it further if you'd like to PM me.

Michael Ablan · Answer

@Sarah M. - Nice purchase!  How long have you owned it?  Residential lenders require a 6 month seasoning period before you can pull out anything more than your initial investment ($60k).  Commercial lenders can do whatever they want, but the terms aren't as nice.

Check with your local banks first and see what they can offer.  You might have a rock star or two in your own back yard.

John Woodrich · Answer

Contact @Tim Swierczek, he is a local mortgage broker who also invests in the area.  He can discuss your options.