Pulling money out, lending options

16 Replies

Hi All,

I own a property free and clear, and want to pull some money out of it to invest in other properties.  I'm thinking I'd like to do a 3-5 year interest-only with a balloon at the end rather than a traditional long-term mortgage.  

Recommendations?  Private money lenders?  

Happy Investing!

Cheers~

Tara

@Tara Piantanida-Kelly  

I'm fairly risk adverse, so I would personally do a HELOC against the property. There's no early payment issue, you're only paying interest on the portion of the money you have advanced, and there is no looming balloon payment. Just my 2 cents. Good luck!

Why not just do a conventional 15 yr mortgage/cash-out refi on the free and clear property? You'd get a really good interest rate and lower payments. If you wanted to pay it off early (i.e. 3-5 yrs) you could just make extra payments, but you'd have the flexibility not to and you wouldn't have to worry about a balloon payment in the near future. 

why not 30 year? what's the point of interest only? 

That's not a bad idea, @Kyle J.  .  The P&I payment would be just under $400 for 15 years (unless I pay it off earlier) rather than the $500/month interest only payment +balloon.  I guess I was just hesitant to get a longer term loan if I only needed it for 3-5 years.  But you make a good point.  

Where are you in NoCal?  I  lived in Dublin (SF Bay Area) for 17 years.  We left in 2005.  Are you able to find any cash flowing properties there, or do you just invest for appreciation?  

Thanks again for your suggestion!

Happy Investing!

Tara

but again... why even 15 yr? do a 30 year and if yo want to pay it off earlier, just pay more each month!

30 cashflows much better!

Originally posted by @Tara Piantanida-Kelly:

That's not a bad idea, @Kyle J. .  The P&I payment would be just under $400 for 15 years (unless I pay it off earlier) rather than the $500/month interest only payment +balloon.  I guess I was just hesitant to get a longer term loan if I only needed it for 3-5 years.  But you make a good point.  

Where are you in NoCal?  I  lived in Dublin (SF Bay Area) for 17 years.  We left in 2005.  Are you able to find any cash flowing properties there, or do you just invest for appreciation?  

Thanks again for your suggestion!

Happy Investing!

Tara

I'm in Lodi. The market around here (like many other places) has definitely changed over the past couple years. It's harder to find good deals, unless you're looking at off-market properties. 

Originally posted by @Tara Piantanida-Kelly:

Hi All,

I own a property free and clear, and want to pull some money out of it to invest in other properties.  I'm thinking I'd like to do a 3-5 year interest-only with a balloon at the end rather than a traditional long-term mortgage.  

Recommendations?  Private money lenders?  

Happy Investing!

Cheers~

Tara

I would definitely look for a bank loan and if cash flow is your goal, I would aim for a 25-30 year am. I suspect interest will go up in the future, so the longer fixed rate you can get, the better. Banks are loosening up, but of course, they're still a bit stingy with investment property so that all may be asking a lot.

Originally posted by @Tara Piantanida-Kelly:

Thanks, @Hattie Dizmond ! I've had lenders tell me that they won't do a HELOC on a property that doesn't have a mortgage.

Somehow that doesn't surprise me, but it's the most ridiculous thing I've heard today...not ever just today! Talk to more & different banks. The beauty of the HELOC is that it's there when you need it, but you aren't paying ANY interest or PI payments, until you do.

@Tara Piantanida-Kelly  

Getting private money is going to be exorbitantly high, even relative to any 15yr or 30yr mortgage. The amortized payments plus costs on a 15yr or 30yr will still be less than the costs, points, and interest on a private money loan for 2-3 years, and you still have the risk of the bullet payment. There are no prepayment penalties on 15-30 yr mortgages, so you can pay it off in 3 years if you want to. No problem.

If you can't find a bank that will do a HELOC when the property is free and clear, you can get a cash-out 1st mortgage. There are other banks that will do a 1st lien, with the same structure as a typical 2nd HELOC. Try Fremont Bank if it's an old property of yours in the Bay Area. Or just call around to some community banks or credit unions.. As long as you qualify with your DTI.

Private money, even w/ a low LTV, is going to be 2-3 points, plus 8-12% annually.. plus or minus..

Thanks for the great suggestions, everyone!  Now let me throw a monkeywrench into the pot to see if your suggestions change:

1.  Between my husband and myself, we already have 5 mortgages.  We've run into lenders who won't lend more than 4.  Do you know of any that may go above 4?

2.  My paid position/job was eliminated in July, and I'm starting a real estate business - so our debt-to-income ratio might not pass muster with a bank.  

What would you do?  

Are all 5 in your joint names?   

I did a search for 4+mortgage lender few month ago on BP. I am also exploring this topic, these lender names came up.

 citimortgage.com

unionbank.com

flagstar.com

statefarm mortgage

snmc.com

www.guildmortgage.com/

guaranteed rate.com

east west bank 60ltv loans

Portfolio lenders don't require maximum of 4. Also, I recently spoke with a community bank that offers heloc on free and clear property. You should call more local banks. 

Check out Merrill Lynch's Prime First program: http://www.merrillhomeloans.com/mlhl/pages/adjusta... (no connection; I used to work for ML 12 years ago)

It's interest only for 10 years (at an adjustable rate, LIBOR-1-mo + 1.625%), then is a 15-year amortization of the principal (at the same adjustable rate).

Upside: They don't have to abide by the conforming mortgage limits as it's underwritten in-house.

Downside: It's adjustable. They qualify you on DTI (max 43.5%) based on the current rate plus 5%, with a 15-year amortization schedule, so your lack of income may be mathematically disqualifying.

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