Buying Cash - HELOC Before or After Rehab?

Question

Looking for some advice on when to get financing for my next deal. I close on this place on Friday, and am wondering how quick I can pull my cash back out.

Purchase Price - 60k

Rehab - 30k

Tax Value - 100k

ARV - 130k

My question is, should I do the rehab and then get a loan on it, or see if they'll appraise it at tax value and pull my cash back out right away?

Harjeet Bhatti · Answer

If the property is in livable condition you can cash out right away under delayed financing exception. You can cash out what you paid for it and not more than 70% of appraisal value. If you can wait 6 month that will be  75% of appraisal value for 1 unit.

Ryan O'Mara · Answer

I don't know any permanent lenders who would do this if the rehab isn't complete.  If it was your money, would you lend it to someone who hasn't done the rehab and doesn't have the property rented yet?

You'll be in a better position after repairs are done and you have a signed lease.  Seasoning will be the biggest issue.

Eric Armstrong · Answer

Some banks will do an immediate(no seasoning for cash purchases) refi so you can get all or most of your cash back out so that you can use that money for the rehab.  Try small, local banks and private lenders.

Jeremy M. · Answer

@Kyle D.

you're correct in that the tax value really doesn't factor into your refi needs much. My understanding and experience on this is - you can't cash out refinance in less than 6 mos unless you find a portfolio lender that doesn't have to meet the Fannie/Freddie requirements on cash-out refi's. The lenders I've dealt with so far have 6 mo seasoning requirements if I want anything other than a purchase price refi.

Given the little details I have it seems you'd have a few options -

1) buy cash and get a private loan to rehab and hold for the seasoning period, then refi out

2) finance the purchase and fund the rehab yourself. Hold the required seasoning period then refi out

3) see if some kind of seller finance deal could work out to where you could take control of the asset, do the rehab, then refi out after rehab

All the best!

Mike H. · Answer

Not sure I understand what tax value has to do with anything. Do lenders in NC allow you to use the tax value for some loan basis? 80% of tax value? And not need an appraisal?

It would seem to me you can do the loan as soon as the rehab is complete provided your lender will allow you to do a cash out refi off the appraised value as opposed to the purchase price within a certain period of time. i.e. seasoning for 3 mos, 6 mos, 12 mos, etc.

Kyle D. · Answer

I was just using the tax value as a figure. It would still need to be appraised, I'm just hoping it would be close to that.

The reason I would want to cash out prior to rehab would be to fund the rehab. Because I purchased it all cash, I'm tight on funds. I would need to get a private loan to complete the rehab work if I can't refi right away, so I'm trying to weigh my options.

Is it common that a lender will only loan off the purchase price instead of the appraised value? Same with seasoning, I've heard of it before, but is it common for lenders to require this? This is my first time doing it this way so any advice or tips will help!

Brian Garrett · Answer

I'd personally want the appraisal to be based on the ARV once the rehab is done so I'd wait.

Buying Cash - HELOC Before or After Rehab?

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