Buy Multi-Family with Cash out refi

Multi-Family and Apartment Investing
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Buy Multi-Family with Cash out refi

Bill Pate
Real Estate Investor · North Ridgeville, OH · Member since 2016 · 97 posts · 81 votes

Hi,


So I am looking at purchasing a triplex.  For some background I already own 7 rentals and have had them for 12 years.  The tripex is in an A neighborhood with really good schools.  There is a single bedroom, two bedroom, and three bedroom unit.  Market rent for them is $550, $650, and $750+(Three bedroom rentals in this neighborhood are rare).  I think market rate for the three bedroom is probably $900+, but I am basing my cashflow worksheet off of the lower numbers.  At the lower numbers with a 15 year loan it will still cash flow about $650 positive per month.  I would need to do a cash-out refi on one of my other properties and I included the payment for the refi into my cash flows for the triplex bringing the total monthly cash flow to positive $300.  Which I would put into a maintenance and vacancy fund as I do for all my properties.  All of my previous rentals except one were purchased with cash, so getting two mortgages worries me some.  The property overall is in very nice shape, and it's only 10 mins from my house.  It also has a newer 30'x40' garage which I desperately need for storage space.  Has anyone done a cash out refi to use as a down payment for another property before?  I am thinking about putting my offer in with a contingency about the cash out refi, and the mortgage, but I don't know how to word it.

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Salvatore Lentini
Rental Property Investor · Doylestown, PA · Member since 2008 · 1k+ posts · 1k+ votes
7y

@Bill Pate - Depending on your financials (liquidity and net worth), you can get an acquisition line of credit and get 85-90% of the purchase funds and any rehab work needed.  Real estate growth happens with a balance between risk and reward.  While you don't want to over leverage, if you try to build your portfolio with all cash your Return on Investment will be very very low.  After about a half dozen properties traditional banks turned me down so continue to grow my portfolio up to its present 127 rentals with non traditional lenders that don't require W2s or tax returns.   As a full time real estate investor this was a major component to my growth.

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  • Jaysen Medhurst
    Rental Property Investor · Greenwich, CT · Member since 2015 · 4k+ posts · 2k+ votes
    7y

    @Bill Pate, turn off the Dave Ramsey, he's taught you all he can. Don't worry about the mortgages. I'm sure you're not over leveraging.

    A few things to consider:

    1. Instead of doing a cash-out refi, what about a HELOC? If you've got a good rate on your existing note, it may be a better way to go. Sure the rate will be a little higher, but the closing costs are much lower, you don't pay any interest until you actually use the money, and you can reuse the cash.
    2. Why a 15-year note? Are you hearing Dave's voice in your head again? That's fine, but why not a 30-year loan that you pay off like a 15? You'll have a slightly higher rate, but the additional flexibility is probably worth it.
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  • Etai Gil
    Lender · Miami, FL · Member since 2019 · 42 posts · 12 votes
    7y

    Hey Bill,

    The more properties/liabilities you have the harder it is to get a HELOC. The banks are going to take into account DTI which is a big deal breaker, especially when owning multiple properties. They are going to look at all your personal liabilities including, your personal mortgage, taxes on all properties, insurance on all properties, and all your monthly liabilities (credit cards, auto loans, personal loans, etc.)

    While banks to give lower rates and fees, including helocs, there are more lenders. There's a lender I know that will do the whole cash out and give a rate right around the same as the heloc. They are more strict on the equity and credit score however.

    Shoot me a message and we can go over some details if you'd like.

    Good luck!

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  • Salvatore Lentini
    Rental Property Investor · Doylestown, PA · Member since 2008 · 1k+ posts · 1k+ votes
    7y

    @Bill Pate - Depending on your financials (liquidity and net worth), you can get an acquisition line of credit and get 85-90% of the purchase funds and any rehab work needed.  Real estate growth happens with a balance between risk and reward.  While you don't want to over leverage, if you try to build your portfolio with all cash your Return on Investment will be very very low.  After about a half dozen properties traditional banks turned me down so continue to grow my portfolio up to its present 127 rentals with non traditional lenders that don't require W2s or tax returns.   As a full time real estate investor this was a major component to my growth.

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  • Bill Pate
    OP
    Real Estate Investor · North Ridgeville, OH · Member since 2016 · 97 posts · 81 votes
    7y

    @Jaysen Medhurst HELOC didn't make since because I don't have an existing mortgage. I paid cash. My cash flow numbers are based on a 15 year note, but I would actually take a 30 year loan. I forgot to mention that.


    @Etai Gil I am not getting a HELOC. Both loans would be conventional. My DTI is very very low. Six of my seven rentals are owned out right. I don't have credit card debt or personal loans. My car loan is zero percent interest, and that's the only reason I have a loan. I already have financing lined up as far as lenders go.


    @Salvatore Lentini I don't want 127 rentals.  It's not my goal and never has been.  I understand the risk vs reward.  12 years ago I started as a real estate investor and bought one property at a time with my own cash.  In my experience it takes a lot of stones to go spend 100k plus that took me years and years to save.  I want to get to 10 units that I can self manage so my wife and I can have a nice retirement income from that part of our portfolio.  Money doesn't make me happy.  I want to be able to spend time with family, and not have to worry about money.  While 127 rentals may sound great for some it sounds like a nightmare to me.  I started this business so I could have a nice PART-TIME income, and it has worked very well for me.  If I buy this triplex it will be the last or second to last property I buy.  So far I have $214k of my own money invested and we made $47k last year in rental income.  With the triplex we will have $364k invested and make $71k a year in rental income.  That is exactly where I want to be.

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  • Jaysen Medhurst
    Rental Property Investor · Greenwich, CT · Member since 2015 · 4k+ posts · 2k+ votes
    7y

    @Bill Pate, you don't need an existing mortgage to get a HELOC.

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  • Salvatore Lentini
    Rental Property Investor · Doylestown, PA · Member since 2008 · 1k+ posts · 1k+ votes
    7y

    @Bill Pate  - I must have misunderstood.  Sorry if I seemed to suggest you acquire tons of rentals.  That was not my intention at all.  Real estate investing is highly personal.  You need to do what's right for you and set goals accordingly.  I thought you were posing a question about leverage and whether or not to move beyond your current 100% cash acquisition strategy.  If your questions are just "can I use a cash out refi as down payment for another property?" and "can I make it a contingency", the answers to both are yes.  Agreements of sale are not cookie cutter.  You can make them whatever you want them to be as long as both sides agree.  You could make your financing contingency be from your lender not you.  They will loan you the money as long as you can provide x amount of down money.  If your refi doesn't come through then your lender can deny you the loan which would get you out of the purchase agreement due to financing contingency stipulated by your lender.  It would look better than you giving the seller your own contingency tied to the refi of your property.  Hopefully that makes sense.

    1Reply
  • Bill Pate
    OP
    Real Estate Investor · North Ridgeville, OH · Member since 2016 · 97 posts · 81 votes
    7y

    @Salvatore Lentini excellent thank you.  That's exactly what I was looking for.  I already have a signed purchase agreement, so we will see how it goes.  My cash flow worksheet was done very conservatively and shows even with the mortgage the property will cash flow very nicely.  

    1Reply
  • Dan Gamache
    Lender · Boston, MA · Member since 2019 · 417 posts · 150 votes
    7y

    @Bill Pate Bill, with a private lender you can cash out refi one of your rental properties up to 80% of value. You can use that cash to purchase the triplex or as a downpayment. If you have no mortgage on the other properties, you have plenty of option. No DTI issue as loan will be based on cash flow of property(s).

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