Leveraging high value SFR - jumbo mortgage or ?

12 Replies

Hello BP! I have a very nice 5 bed/3bath SFR in Seattle that will appraise for around $1.6m, rented for $5400/mo.

It's time to leverage this equity into new deals and construction expenses for a duplex I own. King County jumbo loan limit is $592k

Lenders I've spoken with are mentioning jumbo NOO limits of 50% LTV and 24 months of cash reserves, which I can't show.

Can anyone offer any creative, big picture advice on how to leverage this huge chunk of equity?

Your huge chunk of equity is costing you thousands in lost income every month.

$5400 rent on 1.6M is no where near enough. In addition to negative cash flow on the property you are losing thousands per month on the opportunity value of the dead equity. There is no upside to leveraging this property.  

Obviously you already know all that which is why you want to leverage however there is no upside to owning this property aside from betting on uncertain appreciation.

It's time to sell before the market turns.

@Thomas S. , if and when the market turns, my Seattle property will take much less of a hit than any other real estate I could buy with its sale proceeds. It's easy to self-manage and get around 4% cap, and the long term appreciation is quite certain to beat almost everything else.

Sure I could chase more cashflow with a mosquito fleet of tough-to-manage rentals, but the big/longterm picture is fine. Really the only thing I don't like about this high value property is the difficulty of accessing the equity. 

@Grant Fosheim , can I borrow your time machine?? Please set if for a few months ago before I rented this place. Seriously though, are there HELOCs available over $500k?

Apparently in the BRRR cycle, there are advantages to moving in and refinancing as owner occupied.

Anyone else have any input or want to tell me I'm crazy in one way or another?

@Thomas Mattausch finding a cash out loan on a property like this will be challenging but they do exist.  I might suggest posting in the Washington forum here on Bigger Pockets.  Or even go to some real estate networking groups in your area to see if some local people have some good banks to tell you about.  Hope this helps!

Hi Thomas,

Welcome to BP and Happy Thanksgiving!

It looks like you’ve got a great opportunity on your hands. Based on the guidelines you mentioned, a bridge loan will help you accomplish this goal.

These are typically shorter term loans (1-2 years w/ interest only payments) and are loans based primarily on the asset itself. They’re designed to work for real estate investors with the intention to refinance or sell once the term is complete.

Based on what you’re saying, we can cash out refi up to 65% of appraised value. This would give you the Capital needed for new projects and cash on hand to meet the 24 month reserve your lender needs upon Refinance.

Costs are a bit higher for this type of loan (7.5%-10%) and usually incur origination fees of 1-3%. Even though it’s higher than a traditional mortgage, I’m sure the opportunity would make up for itself upon the refinance and acquisition of more properties.

Send me a message if you’d like to talk more!

Originally posted by @Thomas Mattausch :

Hello BP! I have a very nice 5 bed/3bath SFR in Seattle that will appraise for around $1.6m, rented for $5400/mo.

It's time to leverage this equity into new deals and construction expenses for a duplex I own. King County jumbo loan limit is $592k

Lenders I've spoken with are mentioning jumbo NOO limits of 50% LTV and 24 months of cash reserves, which I can't show.

Can anyone offer any creative, big picture advice on how to leverage this huge chunk of equity?

Keep dialing for dollars, there are plenty of jumbo lenders out there that'll be a lot more aggressive than 50% LTV for n/o/o SFR. Past ~60% or so you will need to start compromising on it being a 30YF and/or on rate, but if you can lock one down with no prepayment penalty then you can rate/term refinance (r/t LTV caps are lower than c/o LTV caps) out of that in six months.

@Thomas Mattausch , how on earth will you make money if you'll only get a "4 cap" return out of a 6%+ (highly leveraged) funding cost?

You must have really deep pockets, to be able to afford the bleeding each month!...

Updated over 3 years ago

Oh, OK, I get it now: The amount you expect to make out of the money you borrow is calculated to be more than the amount you'd be "bleeding" on your Seattle SFR. Good luck...

@Thomas Mattausch   In addition to flipping houses (trying to close on my first) I'm also a banker at Key. We can do home equity loans for up to 70% for NNO. I'd love to run the numbers on this  for you. Send me a PM and and we can chat.

Updated over 3 years ago

Update: Digging into this further, NOO and that high value makes an equity loan more difficult. You might want to consider a refinance of the mortgage with the new valuation.

as you prob know - 2018 conforming loan limits  increasing in King County are higher ...

  • Limits in high-cost areas increase from to $667,000 for SFR and 853,900 for 2 unit
  • thanks

@Thomas Mattausch . Try BECU for a HELOC. I think they do quick UW'ing and I believe they will give you up to $500k. on a driveby appraisal. Or at least they used to. They used to close them in 2 weeks with $100 recording fee, no strings attached. For this low LTV they do a drive by appraisal as well. Won't get you to the 80% LTV every cashflow monster wants here on BP, but will get you a lot of cash quick with an amazing interest rate that you can pay on only when you want to use the cash. I've used them on non-owner occupied, but I believe at the time it was $250k a prop and driveby appraisal as long as the AVM was below 70% LTV.