Quick refinance success stories?

16 Replies

Trying to start out slow and steady, (and somewhat idiot proof for me) my wife and I paid cash for our first real estate investment (buy and hold) at the end of February. Our goal is to diversify some or our portfolio out of the stock market and supplement my W2 job retirement in 7-10 years. We planned to make our second purchase probably around the same time next year after bonus season, new tax year, etc. As I am continuing my REI education on BP and meeting other great investors, we are thinking we should take some of the cash out of that first investment and get another deal going now. I have talked to two banks and they said we have to own it for 6 mo before they will refi. I am hearing different from various sources on BP, podcasts, blogs, etc. Can someone with experience refinancing a cash purchase shortly after buying share whether they went to a conventional bank, small local bank, or elsewhere? How did you start the conversation to ensure success? Thanks!

@Tom Shepard My business partner and I have completed the strategy you are talking about with 3 different properties and are currently going through another refi right now.  The properties we bought, rehabbed, and refi'ed were all 2-4 unit buildings.

We are in Connecticut, not Tennessee but the feedback we received from banks on the regional and national level was that other than the local banks that hold their own paper (portfolio lender who makes portfolio loans) there was going to be a 6-12 month seasoning period for the refi.  Upon hearing that we did the following.

  • turned our focus to the local banks for a refi because we knew worst case we could always wait the 6 months and refi with a bigger bank so why not try and develop relationships with someone who can refi us quicker?
  • We called every single local/community bank in CT (I am not kidding) and asked to speak to whoever handles their commercial loans and asked them about their portfolio loan programs if they had any
  • Finally we connected with one that does portfolio loans and what do you know he happened to already know our hard money lender really well and had refi'ed deals financed by him before. We did not know of their relationship prior to calling the bank but it worked out.  We have done 2 of our refi's through them
  • The 3rd refi was done through a portfolio lender that called us while we had a property going through a rehab.  Perfect timing, but we had kept in touch with said lender every month and the "checking in" paid off.  We figured it is best to have a relationship with multiple portfolio lenders because if one denies you for a loan you have a backup to go to.  In fact right now we are refi'ing through a 3rd portfolio lender who gives loans based on the asset which is unique.
  • What helped us obtain the refi's I think was our track records and the fact that the properties we bought were good deals and attractive to a bank to refi. The numbers worked very well.  Prior to trying this strategy, between the two of us we had a decade of experience owning, managing, and rehabbing multi families.
  • Also, when we met with the lenders the first time we had a small packet made up and devoted to each project we each had ever done.  It just gave a quick rundown of the numbers and before and after pics.  Nothing fancy.  Again, just to show we had experience.

The biggest difference overall in dealing with a portfolio lender is they have the flexibility in most cases to be the ultimate decision maker on whether you get a loan or not.  As a borrower you do not have to fit into a little box like you would for a loan that is going to be sold off.

This was a little long winded.  If you need clarification on anything let me know.

Michael Noto, Real Estate Agent in CT (#RES.0799665)
860-384-7570

Thanks @Michael Noto

 Good info, and sounds like a solid way to go.  I don't have a track record like that (great job!), but I've got a great credit score and good income, so I would think that will count for something too.

@Tom Shepard
I utilized the same strategy as you (paid cash then wanted to pull money out) of my first several property purchases, and came across a program called the Fannie Mae Delayed Financing Program that allows cash buyers to pull equity out without the traditional 6 month seasoning requirement. The large national bank I used (WF) requires 75% LTV (and they use the appraised value, not the purchase price) so worked out well for me. They will request that you draft a letter indicating your desire to utilize this particular program, so make sure you ask for it specifically.

If you think about it, this program encourages investors to reduce excess inventory on the market without forcing them to keep their money locked up for properties that are only being purchased by cash buyers.

Good luck

Tom,

Sounds like you should not have any issue with doing a cash-out refinance. As Andy said, you can refinance right away. It's called delayed financing. Based on my experience, the lender will loan up to 75% of the purchase price. 

The 6- or 12-month seasoning is required when you want a new value since the property needs a lot of work or you got a great deal. Say you bought a distressed property for $50k, put $25k in rehab, and it's worth $100k. After the required seasoning period, the lender will use the "fair market value" which is $100k. They will lend you $75k so you're essentially got all of your money out of the deal. Rinse and repeat until you have met your buy-and-hold goal.

Here is the catch. The big banks will not allow you to do a cash-out refinance once you have 4 mortgages. That is when you need to talk to a portfolio lender, who can be more flexible with their lending standards. We'll have this chat once you get there. 

Best of luck. 

Thanks @Andy A.

Sounds like a plan.  I will start calling on Monday!

Minh:

Can you expand on the portfolio lending topic. I've maxed out on 4 loans and trying to get all the info I can to continue expanding. 

Thanks 

@Tom Shepard

 I hope you reach your goals.  I was able to accumulate +15 portfolio loans in a short period.  I shared some of my letters I would send to portfolio lenders.  The letters are saved in the BP fileplace under resources.


Frank

Frank Romine, Real Estate Agent in CA (#01957844)

Great info...thanks for sharing everyone.

Update:  I have contacted several local and national lenders after researching requirements for the Fannie Mae Delayed Financing program, and many of them are able to do it.  Looks like I will have several options.  However--  I had to tell them about the program and let them go look into it.  Two of them told me they got a good education today!

Thanks @Andy A. @Michael Noto @Minh Le @Curt Davis @Frank Romine

Great info, as always BP rocks!

Update:  I have contacted several local and national lenders after researching requirements for the Fannie Mae Delayed Financing program, and many of them are able to do it.  Looks like I will have several options.  However--  I had to tell them about the program and let them go look into it.  Two of them told me they got a good education today!

Thanks @Andy A. @Michael Noto @Minh Le @Curt Davis @Frank Romine

Great info, as always BP rocks!

Second Update:

Found out that because the developer still owns more than 10% of the units in this condo development (they own 10/46 and have been using them as rentals for 8 years, selling off one at a time when they want/need to) Fannie won't back ANY loans for this property.  

We are working with a local bank that doesn't use Fannie/Freddie so we will see what they have to say.  Thanks again for everyone's tips and advice so far.  

Thank you you all, I've been wondering the same about pulling cash out of a rehab property. I have my first buy and hold under contract and it definitely needs some love before renting, and I was growing concerned about all of my capital being held for 6-12 months. Much appreciated!

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