Investor · Modesto · Member since 2017 · 14 posts · 6 votes
Can i refinance immediately next day, after closing the purchase loan on investment property.
City: Jarrell, Texas - 76537
The local city lender which i picked has following :
Advantages:
1.)Can commit to close on time.
2.)Which means my earnest money of $10K is not at great risk.
3.)They have good network of appraisal folks, so they can get that in 1 week timeframe.
Disadvantages:
1.)Section A: origination fees, discount points and worst rate overall,
2.)No lender credit.
3.)Total $5K cost difference compared to online lender, along with 1% interest rate difference.
Online Lender: LoanDepot, Better.com, which provides competitive rates.
Local Lender: Keeping it anonymous in this forum.
Also, if it is allowed, can i bump up my interest rate way higher, so that my closing costs(A+B+C+E) are close to $0, so that immediate refinance will not cost be double closing costs?
Would you like me to lend you $100 to buy that broken ps5 so you can fix it and resell it on ebay? If so I want you pay me back the original $100 plus 8% due in 90 days. Instead of monthly payments I can roll the interest into the final payment and no payments are due for 90 days, that should give you enough time to fix it and sell it. Since I don’t know you that well I’m going to need $2 up front. Deal?
@Rudy Munoz in case any other questions can help others reading later, let me know what you're missing or still have questions about. I'll reply here to assist as often as I can.
So can I throw a spanner in here? I'm under contract to close on SFH for 97k cash(mine) It will need 20k rehab(also my cash) So I'll be all in for 113k. ARV in the region of 160k . House will rent out @$1600pm .
What are my best options to get my cash back out ASAP
first off @Martin Carew, what kind of car is that! Looks badass :)
To the best of my knowledge sir, UNLESS you sold to an end buyer (defeating the purpose of you keeping rentals), then I am only aware of waiting until you can do a cash out refinance.
HOWEVER, due to a previous post, there is something I have NOT tried yet but would 100% shoot for and can probably still make it happen earlier vs the cash out refi. If you have someone you trust (at your own risk), you can create a note for the amount you have in the deal (or a different amount ;) ) and either record that as a lien against your property OR discuss with your closing attorney ahead of time and ask them, but you might not have to record the lien but can present them with a loan payoff (the lender might ask for it as well). Then at this time could continue with the Rate and Term refinance because there is a current loan that is presented you are now trying to refinance. Of course the amount at closing WOULD HAVE to be paid to whomever you made the note with.
So again, the latter part is a do it at your own risk depending on who you trust and can make sure you get your money back. I do have investor friends that lend each other money on the regular and never charge each other interest, so it's a very similar situation, but they usually have their lien recorded.
Wow that was good clear explanation for me to have a better understanding of what it means to have no money left in the deal after a refinance. Thank you.
So can I throw a spanner in here? I'm under contract to close on SFH for 97k cash(mine) It will need 20k rehab(also my cash) So I'll be all in for 113k. ARV in the region of 160k . House will rent out @$1600pm .
What are my best options to get my cash back out ASAP
This is how I handle the smaller stuff I buy and rehab with my own cash.
I started do it as a form of asset protection but could probably rate and term refi if needed.
I self-encumber. I have an s-corp I use for active income activities like mgt, consulting lending, etc. It has a generic name and I draft a note and d of t and record it.
When I sell, the payoff docs come to my VP (wife) and we get it released. I haven't refinanced one of these, but could be a possibility. The worst thing a lender can say is no and you'll have to wait for an equity loan to season.
Exactly @Steve Vaughan, agreed. The lender isn’t checking who owns the company the $ came from. Definitely a safer method in the sense of you controlling the funds the entire time.
I've thought of doing that between a couple of my s-corps (well, LLC's taxed as s-Corp) but I was afraid (only because I never asked the cpa or attorney to know) their could be some conflict or lie. So I just never tried and was afraid to tell anyone here since I wasn't sure. But the more I think about it, I don't see why there would be a problem or how the heck with they know, so it would probably never be questioned. 👍🏼👍🏼
@Dakota A. so for a rate and term refi, they can only refi up to the 75 or 80% of the appraised value but NOT TO EXCEED the current loan you have if that’s below 75%
@Jesse LeBlanc Yes, that's what I thought. And if the property was purchased at a good discount, the HML loan amount would be substantially lower than the appraised value. You'd need to wait 6 months to fully capture all equity in the re-fi.
@Dakota A. yes sirrr, but if you don’t have to pull more $ out then don’t. In most cases it’s better for you long term. Then find more PML and deals with equity for best case scenario.
@Dakota A. so for a rate and term refi, they can only refi up to the 75 or 80% of the appraised value but NOT TO EXCEED the current loan you have if that’s below 75%
The lenders I talked with told me that for a rate and term it was 75% of what you paid for it or 75% of the appraisal which ever was lower. The which ever was lower part is what I’m having a hard time reconciling with what I am reading on this thread. So if it is whichever is lower then are you having to guarantee your Private money lender more than what you actually bought it for in order to get your seed capital back?
Also the last refi I did I had to show the actual HUD closing statement from the title company. Not saying all lenders require that, but mine sure did.
That's because they are still thinking Cash Out Refi most likely @Joe S., otherwise you might just need to look into another lender. It's definitely not 75% of what you paid though. Either their is a miscommunication or they just aren't the lender I'd work with honestly.
But a Rate and Term is always off the Appraised Value (from any lender i've talked with so far). So let's say 75% of appraised value of 100k, they'd loan you up to 75k. However, your current loan is 70k. So now they will go with the lower, your 70k. on a cash out, they'd give you the 75k, then you'd leave closing with 5k cash (minus closing cost etc, but to keep it simple is my example).
Outside of that, every lender and their requirements could be a tad different in what their SOP is and what they require.
Normally when you buy a home and you close on it, if you go to refinance it, you're going to run into a seasoning problem. So normally when you refinance or you do a purchase or whatever it is, but most likely to refinance. You're going to have to own the house for at least six months before you can refinance. Check with your lenders to see if there's a seasoning requirement because in most cases, you cannot do a double close.
@David Ginn not the case in a rate and term refinance.
that is where most people get caught up because that’s all they hear “seasoning period” and it’s because most people are wanting money back and to recoup some or all they have invested in the property. They then get this confused and oftentimes then get it stuck in their mind that this is the only option (because it’s oftentimes all most investors know).
I know this is digging up an old(ish) thread but it happens to be the exact strategy a friend and I are considering. He does wholesaling and I'm a CPA. We both have the real estate bug. We're both making stable incomes with the ability to take some risk financially. Our thought with this strategy was to grow a large portfolio of low-income rentals as fast as possible to provide diversification for a volatile asset class. I'm excited to find that the funding strategy we devised has been working well for you and we don't have to prove the concept ourselves.
Our thought is that we can keep the best of his wholesale deals for our portfolio. He finds 5-10 deals in our area a month so we anticipate a steady litter to pick from. We have a few banking relationships between us, a property manager who is exceptional at managing low income property in our area, and a contractor who does good work for a fair price and in a timely manner. We plan to begin by running one project at a time until we get our feet wet then scale up from there.
An example of a deal we can do (my buddy has two buy and holds he acquired by putting 25% down):
Purchase price of $30,000 for a 1,250 sf 3 bed 2 bath SFR. $15,000 renovation. ARV of about $70k. Rents between $725-825 depending on the neighborhood. If we get $50k private money for acquisition and renovation, give the PML first lien position, then renovate and do a rate and term refi, we should be able to come away with none of our own money in the deal. We can then start the process again immediately. If it works well, we would try to do multiple deals simultaneously.
Any holes in this plan that you can think of? Any refinancing issues you foresee as we scale?
Thanks for you time and for sharing your expertise!
Hey there @Tanner Glenn low income areas are usually good cash flow, but the maintenance and vacancy will eat into profits and cause more stress. But some folks, that's their bread and butter and don't mind.
You certainly should keep as many as you possibly can from your own wholesale business. Unless you need the capital or can't handle the rehab process, as long as your number work you should never sell them to me or any other investor out there. Keep them! :)
Depending on where you're at & the relationship you have with the bank will depend on refi issues. Assuming you max out your conventional quickly, then you'll go to an asset based lender or a small local bank, maybe a credit union to refi on small loans like your example. Most of the larger banks won't refi this low, they usually have like a 75k or 100k min loan amounts.
Now, with that said I have friends in Ohio with small banks and they DO NOT have a min loan amount. So his 15-45k loans are common. For me here in Atlanta, I have not found anyone that will loan this low, even some of the larger asset based loan companies often have 50-100k min for refi's on SFR.
I appreciate the quick response! Our financing connections are with small local banks willing to lend on smaller amounts. Also, 50k all-in will probably be the lower bound for our deals since we are avoiding the worst neighborhoods.
These are portfolio loans, though. I don't think they'll do traditional for us on such a small deal but we have been given 80% ltv as an option.
If we're only able to get portfolio loans, is there any reason not to keep everything inside of the LLC vs getting the loan personally then deeding the property to the LLC?
@Tanner Glenn you'll need to discuss that with your CPA. I don't know how your LLC is taxed at the moment and how your other finances are to determine which is the best option for you.
If you deed it over to another name, then if the IRS wanted to they could force you to pay taxes on the unrealized gains since the transfer would technically be a sale. There are some ways in which if that did come up you could argue the point and likely get around that. For example, purchase in an LLC, QCD it to personal name for conventional refi, immediately QCD it back to the same LLC. Again, technically per the IRS from what I understand is a sale BUT if everything was documented correctly and the intention was to always keep it in that LLC then if audited and fought you'd most likely be ok.
With that said, if you're not doing refi's in conventional any longer and strictly portfolio or asset based lenders then MOST LIKELY there would be no need to have in your personal name and clearly safer to have under an LLC if formed correctly.
@Jesse LeBlanc great info. I just purchased a quad where my LLC loaned me the money to purchase and rehab. Soon as I am done with rehab and appraisal comes as expected, I will do a rate and term refi into a conventional Fannie backed loan prior to 6 months. But since I am almost maxed out at 10 conventional loans, I am learning about how to structure future deals that I can refi with companies like Visio etc.
@Terri Wyzkoski if you are more familiar with commercial type loans. I was told by a lender that if I purchase and rehab with my own cash, I can get back the purchase price + any proven rehab (cost basis).