Flipper/Rehabber · findlay, OH · Member since 2015 · 118 posts · 46 votes
Guys,
Looking for some guidance here. More or less closure in this instance. I am shopping around for Refi options in Ohio and am going back to my original Lender for help. Here are their comments:
"If you pay cash for the property, we can do a refinance(upon qualifications) within the first 6 months to get you most of the monies back that you used for purchasing the home if the below items are met… LTV restrictions would apply for the amount you are borrowing. We would use the purchase price as the value for this scenario, not a higher appraised value. Typically max LTV on single family cash out refinance is going to be 75%LTV."
Their "Below Items are met" statement was pretty much an excerpt from the Freddie Mac's Code of conduct 4301.2 / 4301.5.
I am hearing the terms 80 ARV and 75 ARV however this company has stated 75% LTV being from the Original Purchase price of the property. As this has been from a sheriff sale for a 37K cost, my thoughts are I should not accept this offer and continuing searching for one that will offer ARV as I will only be able to obtain 75% of the original 37K value or locate a bank that will offer 75% LTV after the rehab is complete on the value of the home. ARV on this property will range from 140-160k depending on layout and items within. Am I understanding this correctly or am I totally clueless as to what these "Terms" he is referring to mean? Appreciate any feedback!
@Rick Turman, you're understanding it correctly. I suggest doing some more research into local banks/credit unions. Ask them specifically if they have a "seasoning period" on refis. Or just be straight forward with what you're looking for: 75% loan of appraised value once all units have been rehabbed and rented.
@Rick Turman, you're understanding it correctly. I suggest doing some more research into local banks/credit unions. Ask them specifically if they have a "seasoning period" on refis. Or just be straight forward with what you're looking for: 75% loan of appraised value once all units have been rehabbed and rented.
First, just to make sure you understand the two terms.
After Repair Value (ARV) is primarily an investor used term. It is compared to the Market Value of properties. We hope it will be the same or close to the same as a Lenders Appraised Value.
Loan to Value (LTV) is a Lender term use to describe the ratio they will use for the loan amount compared to their Appraised Value.
They are probably offering a Rate/Term refinance loan. It will be based on your initial costs. What you need to be looking for is a Cash-out Refinance loan. The Cash-out will be based on a current appraisal ordered by the Lender. The loan amount provided will be 70% - 80% LTV. Typically it is 75% LTV. This type will require seasoning from 6 to 12 months.
Try shopping around with local community banks and credit unions. You may find you can get a better deal.
Hello Rick, I'm about to get into BRRRR and happened to hear an interesting Podcast on BP that applies to this scenario. It was recently posted, "The Incredible Power of Long-Distance BRRRR Investing with Alex Felice". He uses a different strategy with his BRRRR property on the acquisition. When he initially purchases/titles the property and assigns value he places his after repair/rehab costs into the claimed value with the title company (If I'm understanding his methods properly). This then allows him to get most banks to do a standard 75% LTV (Value is elevated due to the initial roll in of after rehab costs when titling). I believe the "downside" is that he cannot depreciate these improvements over the 27.5 years (which is fine with me) but get's essentially the "ARV/Appraisal" amount out soon after the rehab. He also mentions how to get around the seasoning period. I am going back to listen again and write down the details as I plan to use his method. I was driving while listening so I couldn't write down the details. I'm going off of my memory so I'm sure I'm missing some detail. Anyways, give it a listen. It's episode 301. Let me know how it works out and if I'm misinterpreting something. All the best, Jonathan
How do I get information on a property in distress? I have a property I am interested in; However, It is not on the market and is boarded up. What is the best way to get information on a property like that? (I am currently in NY)
I think I can help clarify...to help get a better understanding of this, try looking up "delayed financing". After the housing crash, conventional guidelines wanted to prevent the practice of buying and immediately taking out all equity at a value much higher than what was paid for the property. However, it is understood that some people use cash in order to close quickly, but then want to access a loan similar to what they would have taken in the first place. This is where the term 'delayed financing' comes into play. Within the first 6 months of purchase, you can refinance a 1-4 unit rental up to 75% of the contract price. You'll have to provide a closing statement to verify the price, along with what the source of funds used for the purchase. Once the 6 months passes, you can then use the market value to do a cash-out refinance (up to 75% for a single unit, 70% for 2-4 unit). With regard to ARV, John is correct...conventional lenders don't really look at after repair value. They would want the work to be done and then have an appraiser confirm market value with comps.
Perhaps a smaller bank/credit union may be able to work with you on this as a portfolio loan if your LTV is strong.
One other piece of info regarding rental income...if you need it to qualify for the loan, you'll get credit for 75% of the lease amount (so, $750 on a $1,000 lease). This accounts for vacancy. Once the property has financials on your Schedule E of your tax return, that will then be used as the basis for determining the income from that property.
This may paste a little ugly, but here are the Fannie Mae guidelines on delayed financing...
Delayed Financing Exception
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.
✓
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 Requirements. The 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; 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.
I am terribly sorry for not responding Jonathan. I did not get any notifications about replies until just now from the most recent however thank you for chiming in. I may have listened to that episode and do remember how (If this is the episode) he would somehow get the rehab costs added into the deal prior to closure with the title agency. I could be off on a tangent here but there is an episode similar to this that I am going to need to find now. As I had to re-read my initial thread to remind myself of what I was doing at that time (about a year) I have actually done a little more extensive research around banks. I found a lender that will lend 80/20 on Conventional terms which are strict at following your normal guidelines with seasoning etc. etc. However, on the Commercial side (Now I formed an LLC for the Rehab side of things) The also offer 80/20 with Zero seasoning. Interest only 12/1 notes. All financials are ran through the individuals credit as the business is a pass-through and as long as the DIR (Debt to Income Ratio) is within acceptable means, I am aloud unlimited loans as more or less a Portfolio.
This should definitely help on the flips, new construction, and Cash out Refi's as all are very similarly packaged just with different terms. I plan on turning 8-10 Flips per year now that I have acquired a team to turn a property every 2 months as a starting point to slingshot us into the next direction.
Upon diving into this adventure and networking, I came across an individual who has been in the roofing and construction industry for years, who wants to team up on bigger scaled projects in which I can also bring them in on these loans with no issues.
Enough of me, what have you gotten into in the past 5 months? Any new endeavours?
You may have found your answer by now however I usually start with obtaining the address of the home. Once you have this, visit your County Auditor Site (For me it would be Hancock County Auditor). You should be able to do a property search based on address. Put the address in and it will give you Everything you need to know about the property from Size, sketches of floor plans, Rooms, Baths, Age, Taxes, Location, Flood Maps, Owners name (Gold to start another search), and even valuation of property (Appraisal Land/Dwelling). Once you have the name of the owner, you can then start another google search on this to try and locate a valid Phone Number for that individual. Get creative. If you need to Facebook Creep go ahead! It's all part of the due diligence process. My colleague pays a 3rd party company for something called Skip Traces. This individual does all the combing for you for a fair price. He also pays another company to call those individuals once the list is provided from the initial search, along with another company to do the negotiations. Once the negotiator brings the deal, they get a small percentage of the deal, and he seals it with the Purchase agreement. Overhead is kinda high, however if 1 deal is made, it pays for itself. This system almost nearly automates the process. Good luck and Crush it!
Thank you kindly for your response! Yes! After you said "Delayed Financing" that is what the podcast was over. I'm not sure if Podcast 301 was over this but that was the term being tossed around that triggered this post. I now have a clearer idea of the direction I would like to go however want to dive back into this genre of financing just to see if I can add it as another tool in the tool-belt. I really appreciate your thorough explanation, and love everyone's opinion. Thanks again Jeff!