Broadview Heights, OH · Member since 2015 · 8 posts · 3 votes
Hello. I recently bought a duplex cash, and wish to cash out the equity, so I can purchase more. I have a couple questions: 1: my understanding is that the property has to "season" for 6 months. Are there any other rules I need to know. 2: Will banks accept a price-to-rent valuation when appraising the property? The recent sales comps value the house at about half of what a price-to-rent approach would. Thank you in advance!
@Steve Vaughan, thank you. I am not in any hurry, I can carry this personal loan for 6 months or a year while it "seasons." I just want to maximize what I can pull out.
Starting 3 to 6 months ahead of when you want to do the cash out refinance, start going to your future-current comps during open houses. Get disclosure packages, which listing agents will generally send out to anyone who requests them saying they are interested in the property. Now you know everything wrong with your comps. Cherry pick from that, and hand this over to the appraiser. That way he knows that 123 Main St sold for $30k less because of the foundation, etc, rather than dinging your value because they didn't know that information.
I didn't invent this and am not an expert on it, but what I do is buy with cash, then self-encumber with my mgt co s-corp. I write a deed of trust with myself or LLC (if it's one of my commercial properties) as mortgagor and the generic sounding s-corp I've had since 2003 as the mortgagee. I take it to the courthouse of the county the property is in and record it.
I can write the mortgage/deed of trust for whatever amount I want, but I usually do for what I hope to receive which is usually 80% of ARV. Gives the bank and appraiser a number to reach for.
When I go to refinance, there's no cash out. It's a simple rate and term refi with the bank paying off the mortgagee - my corp. Without cash out, seasoning requirements and fees are reduced.
No legal advice given. Obtain professional legal, tax and lending advice always. Cheers!
@Steve Vaughan Ok thanks for clarifying. Is the fact that the mortgagee is an S-Corp important to this process or is this irrelevant? Also, are the banks not privy to this strategy? Have you ever ran in to trouble with this method? Thanks again!
@Steve Vaughan Ok thanks for clarifying. Is the fact that the mortgagee is an S-Corp important to this process or is this irrelevant? Also, are the banks not privy to this strategy? Have you ever ran in to trouble with this method? Thanks again!
So far I've only done it for asset protection - to appear leveraged at first glance. I've had the intention of someday getting refi loans, but haven't had to yet. Funny, as your reserves and dry powder levels drop down from cash buys, you work smarter and build them back up organically.
I may not be the one to ask. I have cash because I don't have a ton of loans, hate the process and payments, so getting new ones isn't on my priority list. @andrew postell started an awesome thread about how to do what I am poorly describing. He's one of the top contributors to this forum listed on the right.
@Jay Hinrichs is too smart not to see through my smoke and mirrors of self-encumbrance. Not sure if a big bank or lender underwriting hundreds of loans would dig deep into who they are paying off. Not sure if that's on fannie's radar. I'll know more if I get in the mood for the pain and suffering a refi is and give it a try, but I'd rather invest in a nap for now.
I use PenFed for my investment HELOCs and they have no seasoning period at all. They do use appraisals to set the value though. I had a duplex that is renting for $1775 collectively just get appraised for $27k (which is way under value, but it is what it is, Cleveland appraisals range big time), they took that number and gave me 80% so a $21,600 HELOC.
Ken, how long did your refi take with PenFed? I just started an account with them earlier this month because they are investor friendly.
I use PenFed for my investment HELOCs and they have no seasoning period at all. They do use appraisals to set the value though. I had a duplex that is renting for $1775 collectively just get appraised for $27k (which is way under value, but it is what it is, Cleveland appraisals range big time), they took that number and gave me 80% so a $21,600 HELOC.
Ken, how long did your refi take with PenFed? I just started an account with them earlier this month because they are investor friendly.
I have done three with them. The main thing we had to wait on was the appraisal, but other then that it went pretty quick. As long as you have all your paper work together. I did not like working with Tim as I had to send things multiple times it seemed, so I asked for a different loan officer to work with and it was much better.