1031 - Small House Purchase - Unable to Cash Out Refi

2 Replies

Hey BPers!

A bit stuck in a REI conundrum. Last summer I completed a 1031 exchange and picked up two properties (financed) and one cash purchase. After rehabbing the cash purchase (purchase of $65K, rehab of $7K), I run the comps and see it would appraise at $72-$77K, it's a 1/1 @ 590 sq ft. I own several other properties, which have a mix of equity, sizes and rates. I have started looking for a cash out commercial/business mortgage for a group of 5 properties. The problem I'm running into is that no one (yet!) will take this smaller house (due to size and/or value) as part of the loan. The equity from this house would pay for the loan and I would still receive about $50K cash when all is said and done. Anyone have any ideas if lenders will cash out a small home like this as part of a portfolio or even by itself? These small home cash flow great where I live (San Antonio), but I'm hoping they don't become too much of hassle with lending and refis. Looking to get creative here! Let me know your thoughts on this particular scenario and any wise guru thoughts out there on this type of REI model. Thanks in advance!

@Gordon Way the smaller the bank the more flexible they will be. It will be what is called a portfolio loan, so they will keep it in house. Theses are usually underwritten by the same guidlines as secondary market products, but with some flexibility. The borrower matters more compared to the collateral with a smaller bank. Big banks like cookie cutter loans and they do them by the thousands, you dont fit in as an odd ball.

Smaller banks and maybe even credit unions will be your best bet if you have to use a financial institution. I would ask all my friends and family if they would be interested in making 6% on their money. Also ask friends and family if they have an old 401k that is still at an old job. You could probably get some private money that way.

590sf is always going to be a hassle. The next best thing is to just pay it off. Keep that one as paid, finance the rest that are easily financiable. Banks like cookie cutter as mentioned already. This is not. Pay it off and be done with it.

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