Hello biggerpockets :), heard back from two of my brokers and pretty much the only options I have to get into a rental is going the private route. So I just started thinking and thought about freeing up some cash which I would have about 190-220k to play with. what’s everyone’s opinion on paying all cash not with private and then refinancing?. This way I would avoid all fees going through the private financing and broker fees to get started
* would be also aiming always for an VTB with the owner for me to have emergency funds in case of any unexpected issues
Rental Property Investor · Upstate, NY · Member since 2012 · 3k+ posts · 3k+ votes
5y
"You don't have to take 75% of market value on a ReFi."
Exactly...I always refi'd it just enough so that rental payments/increases would cover the entire payment. By that time the rehab was done & I could cover the Capex. It was Amazing how fast the places became free & clear. Back in those days, with rates dropping from 18%+, we refi'd every chance we got. Today I'd lock in for 30 yrs & pay it down monthly/annually, as there is no other feeling like being FREE & clear.
Rental Property Investor · Northern Virginia · Member since 2019 · 793 posts · 620 votes
5y
@Sarah Jane I paid cash for my first couple of properties then refinanced them later.
There are advantages and disadvantages to cash versus financing.
The most common advantage with financing is you can leverage your cash and buy more properties. However, you can overleverage and run into trouble if you suddenly run higher than normal vacancies or tenants unable to pay rents, and unable to pay the mortgage.
With cash, you don't have to worry about paying the mortgage. However, your cash may not be efficiently used.
Going with private financing can cost a little more but it does still allow you to leverage your cash, if that is your goal. In the long run, the higher interests and fees could be a wash if you find the right investment properties to buy.
By paying in cash, there is the delayed financing route you could take and potentially pull out your money without the typical 6-month seasoning period. However, you still need to be able to qualify for a loan.
In short, you will have to determine how you want your cash utilized. Do you want to leverage and leave the extra for additional properties or an emergency fund, or use the cash to purchase the property?
Hi Aj, that makes sense I guess it comes down to how much of deal you have and then by that you can decide which way to take it. I got told from my broker that private route I’m looking at 6-7% interest and 2-4% in fees, the interest seems ok but 2-4% in fees is that normal? From what I gathered seems like it’s rarely over 2%.
when it comes to refinance do the small banks and credit unions just look at the property and what it’s doing? or me as well? If yes wouldn’t I have the same issue I have now?
@Sarah Jane I paid cash for my first couple of properties then refinanced them later.
There are advantages and disadvantages to cash versus financing.
The most common advantage with financing is you can leverage your cash and buy more properties. However, you can overleverage and run into trouble if you suddenly run higher than normal vacancies or tenants unable to pay rents, and unable to pay the mortgage.
With cash, you don't have to worry about paying the mortgage. However, your cash may not be efficiently used.
Going with private financing can cost a little more but it does still allow you to leverage your cash, if that is your goal. In the long run, the higher interests and fees could be a wash if you find the right investment properties to buy.
By paying in cash, there is the delayed financing route you could take and potentially pull out your money without the typical 6-month seasoning period. However, you still need to be able to qualify for a loan.
In short, you will have to determine how you want your cash utilized. Do you want to leverage and leave the extra for additional properties or an emergency fund, or use the cash to purchase the property?
Rental Property Investor · Upstate, NY · Member since 2012 · 3k+ posts · 3k+ votes
5y
With a good income I started with seller financing & it was the only way finance some of those I bought. Once rehabbed they were refi'd & held as rentals. Leveraged to the hilt I had to sell off some I still REGRET. But it paid down my debt or financed the rehab on the others. I never considered hard money as a few of the guys I worked with were also into REI, so we would often go in together cash, get it up & running then sell. As I got smarter I would just buy out the other partners.
Once debt/mortgage free (1998) my wife & I just went in with cash, as it opened up much better opportunities & faster deal acceptance. We then moved into a different niche by holding the properties CFD & in so doing became hard money.
Investor · New York City, NY · Member since 2014 · 289 posts · 374 votes
5y
We paid cash for one of our properties two years ago. We have not needed to refinance and pull cash out yet but it's nice to know it's there. If you can do that, it's nice to avoid extra fees associated with hard money.
Rental Property Investor · Indianapolis, IN · Member since 2018 · 4k+ posts · 4k+ votes
5y
Making an all cash offer better equate to a good DEAL. Cash is king. Nobody will contest to that statement. Being leveraged to hills is no go for me. I'd rather protect my rentals and take time building a safe portfolio. You don't have to take 75% of market value on a ReFi. I'm actually considering pulling 60% from a primary I own outright to replace an HVAC (rental) and to remodel my garage.
Rental Property Investor · Upstate, NY · Member since 2012 · 3k+ posts · 3k+ votes
5y
"You don't have to take 75% of market value on a ReFi."
Exactly...I always refi'd it just enough so that rental payments/increases would cover the entire payment. By that time the rehab was done & I could cover the Capex. It was Amazing how fast the places became free & clear. Back in those days, with rates dropping from 18%+, we refi'd every chance we got. Today I'd lock in for 30 yrs & pay it down monthly/annually, as there is no other feeling like being FREE & clear.
I just don’t want to run into any trouble when refinancing a property from using off private funds and half mine. I can’t see how a bank could turn that away
Lender · Fort Worth, TX · Member since 2016 · 8k+ posts · 6k+ votes
5y
@Sarah Jane sorry, when you stated "heard from two of my brokers and only option is going private"....what did you mean there? Where these your mortgage brokers saying you couldn't qualify for any type of financing? Or was this your real estate broker saying you needed to buy non-MLS properties? Or something else?
Hello Andrew, sorry yes that’s what I meant my mortgage broker said I don’t qualify for any type of financing, that private financing seems like the only way
@Sarah Jane sorry, when you stated "heard from two of my brokers and only option is going private"....what did you mean there? Where these your mortgage brokers saying you couldn't qualify for any type of financing? Or was this your real estate broker saying you needed to buy non-MLS properties? Or something else?
Investor · Ontario · Member since 2015 · 486 posts · 250 votes
5y
@Sarah Jane If you have the money to purchase all cash then why not? A concern is if another deeply discounted deal were to come up before you could refi it then what? You would be unable to close on deal #2 as you have tied up all of your investment capital in deal #1. I personally would pay the higher rate and have investmet capital left behind. Also I want investment capital left behind for renovations. Cash deals will need renos.
I lost out on a deal last year because I had all of my investment capital tied up. It still hurts. Could have purchased for $419 000 from whoesaler, he later flipped the contract for $479 000. This property had so much meat on the bone.It is likely worth well over $750 000 right now.
I have access to similar rates as above too. I believe on some products the fees are lower or no fees at all.
Lender · Fort Worth, TX · Member since 2016 · 8k+ posts · 6k+ votes
5y
@Sarah Jane hmmm, so if what your mortgage broker's told you is true then none of the above posts will apply since you won't qualify for financing of any type. I don't know what type of mortgage brokers they were, so I still might suggest speaking with other local investors about your scenario, but if it's true then the most important thing is to find private lenders. That you would need to network with locally as well. Try posting in the Bigger Pockets state forums for some local real estate groups. That would be the best place to find local private lenders.
Hello Andrew, sorry yes that’s what I meant my mortgage broker said I don’t qualify for any type of financing, that private financing seems like the only way
@Sarah Jane sorry, when you stated "heard from two of my brokers and only option is going private"....what did you mean there? Where these your mortgage brokers saying you couldn't qualify for any type of financing? Or was this your real estate broker saying you needed to buy non-MLS properties? Or something else?
So Sarah, you "thought about freeing up some cash which I would have about 190-220k to play with", but, you still can't qualify for any sort of normal mortgage? Weird.
It's good therefore that you can still play the game, and stick it to Lenders.
Does your primary have insufficient equity? Or are you not buying where you live?
Or, if your $190-220k is a HELOC against your primary, then perhaps you should stick to that budget for your next investment. That is, until you get such a good deal, that refinancing will get you all or most of that back, so you can "BRRRR". Good luck...
Burlington, Ontario · Member since 2017 · 17 posts · 4 votes
5y
Hi @Brent Coombs that would mean I’d be selling my property in order to free up the cash. I was surprised to hear my only option was private lenders, I even tried to get into a owner occupied property
Hi @Brent Coombs that would mean I’d be selling my property in order to free up the cash. I was surprised to hear my only option was private lenders, I even tried to get into a owner occupied property
Nino, are you also (secretly) posting as @Sarah Jane?
Is your property not also your primary? If you owe nothing on it currently, it also surprises me that you don't seem to be able to borrow anything against its value. What reasons have Lenders (plural) given you?
ie. Why take the rejection of just one Lender as meaning: game over? Good luck...