Melbourne, FL · Member since 2019 · 13 posts · 1 vote
Hey BP,
I have read and heard mixed things on Delayed Financing. Initially I was told that when using delayed financing that you were only able to pull back out the original PP amount; obviously not the goal when using the BRRRR strategy. I than spoke to someone (@House_Hustle) who was using Delayed Financing but was able to not only pull their original purchase amount out but also their rehab costs all before the standard 6 month seasoning period. They did this by adding the Rehab cost amount into their escrow closing statement.
I was planning to use this financing strategy on my next deal I am currently negotiating however the lender I spoke to today told me this is no longer possible as of a few months ago. He mentioned he has done this strategy a lot in the past with multiple investor but as of late he has had to let them know a new rule has passed that no longer allows us to add rehab costs to the escrow closing statement.
Has anyone else heard this? Or is anyone else still using this method of financing with no issues or change?
Investor · Temple, TX · Member since 2019 · 18 posts · 16 votes
3y
Hi @Colin Newton & @Ashraf Syed, not sure if you gents connected already but 3 follow up questions to your comment above:
1) Lets say I put $30k into the Rehab Line on the HUD - Do I then have to wire the 30k at closing to the title company that will then allocate it to the GC that gave me the $30k bid? 2) Can I control the payments of the 30k based on job completion? 3) If the rehab magically costs $20k, can I do anything to recoup the $10k from the GC, or not pay them that amount?
Investor · Durham NC (and Brenham, TX) · Member since 2018 · 301 posts · 197 votes
6y
Hi @Colin Newton, I've been learning a lot about delayed financing myself, and while I don't know whether there have been any recent rule changes re including rehab costs on the HUD statement, I'd recommend checking out this great post by Andrew Postell: https://www.biggerpockets.com/… He outlines a really clever strategy for pulling cash back out of a cash purchase that avoids seasoning requirements as well as the loan minimums based on "initial investment" that delayed financing loans are subject to.
Hopefully someone else can chime in about putting rehab costs on the HUD though!
Rental Property Investor · NJ and PA · Member since 2019 · 206 posts · 105 votes
5y
@Colin Newton, have you found out more about this? I am tying to do the same thing. I saw the (excellent) post @Annchen Knodt refers to, but it does not address this nuance. It only states that the limit is the purchase price or 75% of ARV, whichever is lower. No mention of the "rehab costs in escrow" loophole.
Melbourne, FL · Member since 2019 · 13 posts · 1 vote
5y
Hey Gary,
Sorry for the delayed response, somehow I missed the notification from your tag.
Yes, we have used this strategy on 4 SFH last year. Incredibly enough it seems that so many people (lenders, agents, investors) are either miss informed or completely unaware this strategy exists.
With the right lender we have found it to be a fairly simple process. It must be a cash purchase & the rehab costs must be a line item on the final settlement statement. After closing, rehabbing and entering the cash out refi phase you are than able to pull out up to the amount that was on the final settlement statement (PP + Rehab costs listed). There is no seasoning period and our lender is at 75% ARV as well.
Let me know if that add any clarity. I would be happy to connect if you would like to discuss further.
Hey @Colin Newton so what exactly should I communicate to my title company in order to get the rehab costs add to the final escrow statement. I would love to connect so I can get a little more insight on this if you don’t mind.
You need to let them know to add a rehab cost line under the Misc section on the final HUD statement. This line should include the total amount of rehab you are budgeting for. The final HUD statement will then show a total including both PP & Rehab costs thus allowing you to pull that total out at the Refi stage. I would definitely connect with your refi lender prior to closing to make sure they understand the process and will be able to help complete it when it comes time. They need to understand the process as well so there aren't any surprises when you go to refi. If you want to you can shoot me a DM and we can connect over the phone to clarify further if needed. Security National is who I use.
Investor · Temple, TX · Member since 2019 · 18 posts · 16 votes
3y
Hi @Colin Newton & @Ashraf Syed, not sure if you gents connected already but 3 follow up questions to your comment above:
1) Lets say I put $30k into the Rehab Line on the HUD - Do I then have to wire the 30k at closing to the title company that will then allocate it to the GC that gave me the $30k bid? 2) Can I control the payments of the 30k based on job completion? 3) If the rehab magically costs $20k, can I do anything to recoup the $10k from the GC, or not pay them that amount?
Hi @Colin Newton & @Ashraf Syed, not sure if you gents connected already but 3 follow up questions to your comment above:
1) Lets say I put $30k into the Rehab Line on the HUD - Do I then have to wire the 30k at closing to the title company that will then allocate it to the GC that gave me the $30k bid? 2) Can I control the payments of the 30k based on job completion? 3) If the rehab magically costs $20k, can I do anything to recoup the $10k from the GC, or not pay them that amount?
these are great questions that I'm trying to figure out too. But my guess would be that it depends on the escrow and/or title company?
Melbourne, FL · Member since 2019 · 13 posts · 1 vote
2y
Hey Denver & Haiang,
see my responses below based on our experience with this.
1) Yes, have to wire entirety at closing. You need to have clear communication for them to send you the 30k check & not the GC. If you don’t say anything they will likely send the full amount to the GC, which is obviously not good. If it is a non trust worthy GC you may never see that money again & in less drastic terms you simply want to pay for work as it is finished like you mentioned.
2) You can control them because the 30k will be returned to you & then you will disbursement Payment to the GC in standard fashion.
3) If the rehab costs less you do not have to pay the overage to the GC & do not loose this money. You normally want to aim high on the rehab hab estimate in general but even more so here as the total you put on the final HUD (PP + rehab) will be the Max you can cash out when you refi in the future. Only negative of over estimating is having to have more capital to put down at closing.
Realtor · Denver, CO · Member since 2013 · 2k+ posts · 1k+ votes
2y
You can also do a rate and term refi without the seasoning. Your lender might tell you that you can't, so find another lender that will. It would be a rate and term based on appraised value.
see my responses below based on our experience with this.
1) Yes, have to wire entirety at closing. You need to have clear communication for them to send you the 30k check & not the GC. If you don’t say anything they will likely send the full amount to the GC, which is obviously not good. If it is a non trust worthy GC you may never see that money again & in less drastic terms you simply want to pay for work as it is finished like you mentioned.
2) You can control them because the 30k will be returned to you & then you will disbursement Payment to the GC in standard fashion.
3) If the rehab costs less you do not have to pay the overage to the GC & do not loose this money. You normally want to aim high on the rehab hab estimate in general but even more so here as the total you put on the final HUD (PP + rehab) will be the Max you can cash out when you refi in the future. Only negative of over estimating is having to have more capital to put down at closing.
Hope this helps!
What market are yall in/investing in?
Hey! Thanks for your response! Since the sellers or wholesalers usually choose the title company, would I need to reach out to the seller's or wholesaler's title company asap before or while putting an offer out on a property to see if they are even able to add the rehab cost into the settlement statement and specifically disburse it back to myself? Is it safe to assume that there are title companies that don't do this, so best to check before putting an offer on a property?
Melbourne, FL · Member since 2019 · 13 posts · 1 vote
2y
Hey Hsiang,
I have not seen it where the title company is not able to handle this. They just need to be directed on how to properly do so and you will need to see the final HUD statement before moving forward to make sure it was done properly. In the past, our lender reviews the final HUD to make sure everything looks good for them to handle the refi in the future prior to us moving forward with closing.
I have not seen it where the title company is not able to handle this. They just need to be directed on how to properly do so and you will need to see the final HUD statement before moving forward to make sure it was done properly. In the past, our lender reviews the final HUD to make sure everything looks good for them to handle the refi in the future prior to us moving forward with closing.