How Can I Pull Money Out Of My Homes

Question

I purchased 4 SFH's in Kansas City in an off-market deal last week under my LLC. I bought my first rental property in April of 2016 under my own name.

My 4 SFH deal, my homes were purchased for $177,000. They appraised at $217,000, which makes my LTV 62%. The bank for my 4 will only loan out on the purchase price, which is 80%.

My first home bought in April sits at 72%.

I have another house I'd like to scoop up, but I don't want to put more of my own cash in.

Do I try and speak to my bank about my 62% LTV and my 30% Cash on Cash return I can get on this current deal I'd like to offer on?

Should I get a hard money loan to snag the deal?

Darren Eady · Answer

Appraisals are a funny thing.  The appraisal value is a guess of someone will pay for a home.  Since you paid $177,000, the four homes are worth $177,000, not $217,000, at least, not right away.  This is why the bank is giving you a hard time about using the appraisal value for a refinance within the first six month's to a year of ownership.  I would sit tight and wait for bank financing rather than look for HML solutions to getting your money back out.  Some banks do not have a seasoning rule to use the full value, so I would definitely check around for those local banks before waiting six months to a year.

John Daley · Answer

I have had the best results working with the commercial lending department of my local bank.  They tend to be more flexible on terms and should be able to give you some options.  That being said, I purchase my properties in cash, then immediately refinance them with a commercial loan (sometimes a portfolio loan if you have multiple properties).  They can lend a percentage of the appraisal value without any waiting period so, if you bought it right, you get your cash back to put into the next deal and have just acquired an asset with no money down.  Just make sure it cash flows and, as was mentioned, don't over leverage and keep cash reserves for unexpected expenses.  I've seen too many bank owned properties for sale that were a result of an investor who didn't have cash reserves to ride out a bad turn and wound up losing the whole property...

Andrew Postell · Answer

@Michael Glaser the basic premise is that a conventional loan has some hard rules when it comes to taking your money out of the house.  If you purchased the homes with cash, then you would be limited to 75% LTV or your purchase price + closing costs...which ever amount is lower.  If you purchased the homes with a loan then you would have to wait 6 months to do a cash out transaction.  That's with a conventional loan.  A portfolio loan is an entirely different loan type.  Some banks have them and some banks don't. Basically a portfolio loan is the banks own money (conventional loans are money from Fannie Mae and Freddie Mac) so depending on the bank the loan could be very different.  Most portfolio loans that are popular with investors still have a seasoning requirement when pulling cash out.  Again, this could be very different dependent on the bank's portfolio product.  Hope this helps!

Michael Glaser · Answer

@Darren Eady I think it's best to wait to pull that out in 6+ months. Not that I have the choice. The bank seems to understand my business model. Once I start to execute and the results start accruing maybe they'll take a different position on my recognized LTV.

@Andrew Postell  I own them already. Closed earlier this month. If another bank came in and saw my purchase prices vs. appraisals would they possibly let me pull my interest out?

Andrew Postell · Answer

@Michael Glaser I can help but you asked "should I get a hard money lender to snag the deal"?  Do you own these already or are you needing funds to buy the homes?  If you are looking to get cash out of homes that you already purchased then a portfolio loan will go to 80% LTV (normally).  Some portfolio loans will have a seasoning requirement (meaning you have to own it for a few months) to get cash out.  If you are trying to get cash out of each home with a conventional loan then you will be limited to 75% LTV.  So there isn't much room in either selection.  If you are trying to buy the homes then a Hard Money Lender can help but to refinance out of those loans you will be subject to the 80% LTV and 75% LTV limit respectively.  Let me know if there are any other details you need.  Thanks!

How Can I Pull Money Out Of My Homes

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