New to Real Estate · San Francisco Bay Area · Member since 2020 · 17 posts · 6 votes
First ever post here!! My question is how are you professionals able to cash out refinance on LTV without waiting the 6 month seasoning period? Are there requirements that must be met? Does it depend on the bank? Does it depend on the type of property? Depend on the state the property is in? I would be paying cash for the property and rehab if that makes a difference as well.
I'm excited to be here on this community, can't wait to network with you all!
Rental Property Investor · Gilbert, AZ · Member since 2016 · 3k+ posts · 4k+ votes
6y
@Dan Valiente it can depend on your relationship with the bank but generally banks will give you 70% of the appraised value or 80% of the cost plus rehab, whichever is less. That can make it difficult to do a true BRRRR where you get most, if not all, of your own money out of the property upon the refinance.
The way we work around this is we buy the property and put the rehab costs into the closing to be held in escrow for when we buy the property. Then we take draws on that money during the rehab. Any extra money that didn’t end up getting used in the rehab just goes back into our account.
When we go to get the refi done, the appraiser looks at what we bought the property for (what it closed at with the county records) and then he or she appraises it at market value. The bank looks at what we bought it for as well. However, they don’t see the wholesale price we bought it for, they see the market price of what we are going to sell it for.
We are usually able to get loans for our properties at 70% of market value by doing it this way. Most buyers and sellers and title companies are not aware or familiar with doing this so very few investors take advantage of this opportunity.
Investor · Chattanooga, TN · Member since 2013 · 53 posts · 24 votes
6y
@Dan Valiente in my experience it depends on the bank. I’ve successfully brrrr’d a few properties and never had a seasoning period requirement. I would check around to different lenders and just see what terms they offer. I’ve found the terms can vary quite a bit from one to another.
Lender · United States · Member since 2020 · 1k+ posts · 499 votes
6y
Brian is correct. If you want to keep your business growing without delays, private lending companies are your route. Their loans typically don't show on credit, don't have seasoning periods and don't look at your income.
Rental Property Investor · Gilbert, AZ · Member since 2016 · 3k+ posts · 4k+ votes
6y
@Dan Valiente it can depend on your relationship with the bank but generally banks will give you 70% of the appraised value or 80% of the cost plus rehab, whichever is less. That can make it difficult to do a true BRRRR where you get most, if not all, of your own money out of the property upon the refinance.
The way we work around this is we buy the property and put the rehab costs into the closing to be held in escrow for when we buy the property. Then we take draws on that money during the rehab. Any extra money that didn’t end up getting used in the rehab just goes back into our account.
When we go to get the refi done, the appraiser looks at what we bought the property for (what it closed at with the county records) and then he or she appraises it at market value. The bank looks at what we bought it for as well. However, they don’t see the wholesale price we bought it for, they see the market price of what we are going to sell it for.
We are usually able to get loans for our properties at 70% of market value by doing it this way. Most buyers and sellers and title companies are not aware or familiar with doing this so very few investors take advantage of this opportunity.
Investor · Boulder, CO · Member since 2016 · 1k+ posts · 1k+ votes
6y
@Dan Valiente Here is an article on how to get BRRRR financing done (there are so many ways!). The terms are constantly moving, but the "how" will remain the same.
New to Real Estate · San Francisco Bay Area · Member since 2020 · 17 posts · 6 votes
6y
@David McLean Were these through traditional banks, or were you able to find smaller community bank that would work with you? If conventional would you mind sharing the name of some that you found to be favorable? Is that allowed here?
New to Real Estate · San Francisco Bay Area · Member since 2020 · 17 posts · 6 votes
6y
@Brian Garrett Thanks for the info. When you say the rates are less favorable, are we talking a full % point or higher, or are they variable? What makes them less desirable?
New to Real Estate · San Francisco Bay Area · Member since 2020 · 17 posts · 6 votes
6y
@Shiloh Lundahl Responses like this are the exact reason why I joined this site! That's a great way to structure a deal that I would have never thought about. I would be interested to learn more about how you actually put the rehab costs into closing and what that looks like.
New to Real Estate · San Francisco Bay Area · Member since 2020 · 17 posts · 6 votes
6y
@Whitney Hutten Thank you so much for sharing that with me. That's great that you take the time to write articles to share your knowledge. I'll definitely check it out.
Lender · Boulder CO Colorado Springs, CO · Member since 2019 · 13 posts · 4 votes
6y
@Dan Valiente it's typically 3 months seasoning for private money. Rates range from you 4.5% to 6.5% depending on DSCR, credit score, and LTV. I am referring to no income documentation loans.
Rental Property Investor · Delray Beach, FL · Member since 2019 · 9 posts · 5 votes
6y
@Shiloh Lundahl
Hi Shiloh. I was to make sure I’m following your system here because it sounds awesome! Can you provide an example with numbers? I’m understanding that you make the purchase price seem higher than it really is by adding your rehab cost into the closing. But I don’t understand how your be fitting from this.
New to Real Estate · San Francisco Bay Area · Member since 2020 · 17 posts · 6 votes
6y
@Account Closed hmm, if you have to wait 3 months anyways with a private lender and take the hit of higher rate; maybe it is best to just wait the 6 month seasoning with conventional
That sounds very interesting, please help me by clarifying. You mean at closing you add additional rehab cost into the total cost of what you are paying so that you have it available after your purchase? Is this to say you asks banks for more money that the purchase price?
Here is an example I just shared on a different post. I got an email for a wholesale property in Mesa, Arizona. The cash flow projections were too low to do this with my business partner so I decided to do this deal with just my daughter and I instead. So we created an LLC together and we bought the property for 155k. I got a hard money loan for 140k and a private money loan for 15k. We paid some closing costs but instead of just buying the property for 155k (which could have lowered the value of the neighborhood and influenced an appraiser to give the value of the purchase price as the market value - which happens a lot) I bought it for 190k (which was more realistic of the true market value). I brought in additional money into the closing of around 40k for rehab funds in order to bring the purchase price where it needed to be to bring it to 190k.
The plan with the property was to either spend those rehab costs on a full remodel or do minimal fixes and just have the new tenant buyer for the lease option upgrade the property to their liking. I decided on the later. After the closing, I got a check from the title company for the rehab funds they had held in escrow for about a week and I put the money back in my account. The property recorded at the higher amount of 190k and the appraiser for the refinance appraised it at 190k. I put about 2k into some repairs and the tenant buyer gave me a check for $3900 for the option fee and the first months rent and security deposit.
The bank gave me a 70% commercial loan (since I am not able to have any more conventional loans) totaling 133k. I got a private money lender who lent 19k for 3 years at 10% to be in second position bringing the total encumbrance to 80% totaling 152k. With the total in loans plus the option fee, I was able to pull out the majority of our money in the property, create 35k in equity, and get a cash flowing asset of about $250 a month.
Rental Property Investor · Gulfport, MS · Member since 2018 · 113 posts · 133 votes
6y
@Dan Valiente add it to the HUD as mentioned then do delayed financing with your bank. They'll lend at 75% LTV (maybe more depending on bank and your financial position) of original purchase price on HUD.
@Account Closed hmm, if you have to wait 3 months anyways with a private lender and take the hit of higher rate; maybe it is best to just wait the 6 month seasoning with conventional
I agree Dan if you are only going to have a small portfolio. The difference between private money and conventional is that private money does not report to the credit bureaus. Investors with large portfolios do not want 20-30 mortgages on their credit report. It makes it difficult to finance more properties and if I remember correctly, I think there is a limit to the amount of properties you can own under conventional programs. With private money, there is not. They typically set up as LLC's. Additionally they are no income verification loans and require substantially less documentation. Private money isn't for everyone. I haven't funded any conventional deals in a couple of years. It used to be 12 months seasoning for cash out on FNMA.
Flipper/Rehabber · Member since 2019 · 45 posts · 21 votes
6y
@Shiloh Lundahl I'm not clear how your appraiser would have "seen" your higher 190k amount, and appraised it as such. Where would they see this number? The purchase price of your property was 155k, and this is the number that would get recorded at the county. I realize you added around 40k to your settlement statement when you purchased, but why/how would the appraiser for your refinance see the settlement statement? Wouldn't they just see the sale price of 155k on the county records?