Delayed Financing worth it? Or retain as cash buy?

Question

I am at at cross roads. I have a small townhouse (2/2) that I already closed on for $70k. I have to rehab the place for $20k to make it rentable for $1200/mo. I want to know 2 things from yal experts:

(1) Is this a stupid deal to finance? The Cash flow is low to me... The mortgage broker I spoke to mentioned that I could only mortgage the $70k and NOT the fill $90k. This would be a delayed financing product that I would be using.

(2) If I finance this place under my name, does it negatively effect how I can leverage money in the future? Currently I have one VA mortgage that I have house-hacked.

See attachment ! Thank you!

Kevin

Kevin Woodard · Answer

The bigger question is do you need the cash and are you looking to increase COC returns now? If the answer is yes then delayed financing would be your best bet and delayed financing will utilize purchase price, if you are looking to include rehab you will need a product that does just that.

You could go delayed financing with a fix & hold-type loan that funds 100% of construction, then refinance after rehab using the $140,000 ARV (75% LTV). This maximizes cash on hand, which could be useful in the coming months, and increases COC.

Hope this helps, who did you serve with by the way?

Semper Fi

Gene Hacker · Answer

What is the value? How long have you owned it?

It may be possible to do a cash-out refi if you have owned it long enough to fill seasoning requirements.

$1200 rent should cover DSCR loan coverage requirements.  The issue could be the loan-to-value requirements as the DSCR lenders I have worked with seem to want 75% LTV or lower. But there could be other products out there.

You should talk to several lenders.  Not all have the same experience or products to offer.  It could also be worth talking to local banks as they sometimes have more flexibility than big lenders.

Simmy Ahluwalia · Answer

No need to do a delayed purchase/refi.  Make the repairs, and then after 3 months of title ownership, you can c/o refi some of the equity and put a 30 year note on it, or shorter term.  Must close in an LLC with our programs.

Carlyle Gianni · Answer

Depending on when you need the cash, it might be better to wait until there is a paying tenant in the property. You will have more lending products available to you with a paying stable tenant, such as a DSCR loan.  That gives you the most options, and potentially the higher LTV. Another thing to consider is possibly recording a lien on the property from an LLC (yours) and you as an individual are the borrower.Then you are looking at a rate and term refinance (higher ltv) versus a cash out refinance, but you would have to ask the lender if they allowed arm length transactions like this.

Kevin Parekh · Answer

Thanks Kevin,  I was in the USN from 2013-17 on a few carriers out of San Diego!

I really do not need the cash, BUTTTT I want to be ready for the impending downturn in the market. So my thinking was: pull the principal out and catch the next few deals.

Any leads on a lender that can help?

Kevin Parekh · Answer

The value is $140k ($168k at the height of COVID). I have owned it for like 15 min:) hence delayed financing.

Delayed Financing worth it? Or retain as cash buy?

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