Originally posted by @Omari Morgan :
I've bought a hand full of properties outright and owned them for a few years. I'm looking to pull cash out and leverage these properties. Hopefully someone can understand this question. The are in decent condition, 3 year old roofs, in good repair and working order but 2 are in C areas and definately lived in. What condition should a property be in for the bank to finance against it? Should I repaint and spruce them up with the tenants in there? It's my first mortgage on my rentals and I just dont want to waste time or money getting rejected.
The area shouldn't have any impact on if they will do a loan. That may affect value, but it shouldn't affect the ability to borrow against them. Since they are "free & clear" the question to ask each lender that you talk to is "do you have any seasoning requirements" Find the ones who will lend today without making you wait 6 months or a year. They are around, you just have to keep calling until you find one. If your plan is to have renters, generally once they are in place and paying rent, 75% the rent they pay will goes towards debt repayment (which is a good thing and increases your likelihood of getting financing.) So, your decision then is "do you put renters in place first or do you have enough current income to meet the banks debt to income ratios" for the loans you plan on taking out.
With rental properties, lenders typically want to evaluate the worthiness of the property first, borrower second. That being said, on a cash out refinance, you're going to get the lower of 70-80% of the purchase price or appraised value. Of course if you bought these cash a bank would love to see that you've added some value. You'd have to make your own calculations on what improvements will actually go towards getting a higher appraisal and which are wasteful.
Lenders are going to be less concerned with it being in a "C area" (if by that you mean the part of town with more crime and poverty) than they will be about whether or not its Cashflowing!
Do not expect an easy time or ideal terms on a cash out refinance if the property is not occupied and cashflowing.
There's a lot more that obviously goes into this but I hope this helps and feel free to reach out if you want me to take a closer look at your situation.
All the best,
How many properties do you own now ( including your home ? how many of these have loans on them now ?
Assuming the only home you might have a loan on is your home ...you should be able to access 75% of your rental property(s) value .
All the best,
Fannie Mae, or FHA who is in my opinion the toughest lender when it comes to condition, only require a property is safe, and secure. For example t must have hand rails, and no peeling paint, no holes in the walls, but aside from that, I rarely ever see properties get denied because of condition. And told it is, they’ll just list the repairs you need to make to get the loan approved. I think your creating fear where there shouldn’t be. Your properties sound like they are in decent shape, I’d be willing to bet you have no issues getting the loan. Every lender is different, as is every appraiser, so you really can never know ahead of time exactly what they might be looking for in condition, but like the example I made above I know FHA will Call out peeling paint and hand rails so I always warn buyers and sellers ahead of time to expect to repair them.
Dave, you guessed right. 6 homes total. With a loan only on my home.
Mike and Alex - Good stuff. So the I have owned the homes between for several years. Oldest 5 years Newest 6 months. All but the newest one I have 2 years of tax refunds showing positive cash flow. The only issue is that one is not rented at the moment. (The tenant just moved out) Should I wait for a new tenant?
William - Thanks that gives me a some piece of mind. I think you are 100% right when you say I am "creating fear where there shouldnt be." Your insight was very helpful. I think Im just trying not to go to the bank and make a fool of myself.
If anyone else has anything to add. Ill take it!