Rental Property Investor · St. Petersburg, FL · Member since 2017 · 3k+ posts · 4k+ votes
7y
@Mike F. Right answer: paying the current loan and using the remaining cash to continue purchasing assets. Wrong answer: Going to the casino and putting it all on black!
Toronto, Ontario · Member since 2014 · 615 posts · 172 votes
7y
@Philip McCleary. On the contrary, I will opine it is the bank's business to know where their money is going beacuse it has to be paid back. banks are not in RE business but must ensure thier funds come back......
By the way, I agree with your response to tell the bank the truth...it will save you a ton of head ache if the transaction goes south! :)
3 people you must tell the truth always because they can save your life; Doctor, Lawyer and banker.... my one cent!
we had this issue. We said we want the money to buy another property in the future. They wanted to know purchase price, location, ect. before moving forward. So we said we changed our minds and wanted the extra money to go on vacation instead...no more questions about it and it went thru smoothly.
They would rather you waste it then "risk it" in real estate... not sure how that makes sense
Not much of a risk if your reinvesting in Real Estate. I agree, that makes no sense. If I had another 200k I wouldn’t want to “risk” it by adding 5 more incoming producing assets that pays for itself and a little meat left on the bone for me lol
@Philip McCleary. On the contrary, I will opine it is the bank's business to know where their money is going beacuse it has to be paid back. banks are not in RE business but must ensure thier funds come back......
By the way, I agree with your response to tell the bank the truth...it will save you a ton of head ache if the transaction goes south! :)
3 people you must tell the truth always because they can save your life; Doctor, Lawyer and banker.... my one cent!
I understand but if I have a proven track record of investments and solid tax returns and I'm doing a refi or HELOC to reinvest I tell them I'm buying more assets for my portfolio. I just got a 180k HELOC and I whacked it down quick, my banker didn't care as my credit showed I was low risk. Maybe it depends on the circumstances and the banker
Real Estate Agent · Southington, CT · Member since 2008 · 5k+ posts · 3k+ votes
7y
@Mike F. This question comes up on every BRRRR refi we have done here in Connecticut with our lender. They just want to know that the money they give back to you will be going towards growing or maintaining your real estate business.
The right answer is the truth. But tell is in a way so the can't say no.
The loan officer might be trying to be helpful. In the 1990s when I applied for a HELOC and was asked what I was going to use the money for, the loan officer explained that under the tax laws of the time, I could only deduct the interest on up to $100K if I borrowed the money for purposes other than fixing up my home. Back in the 1980s, Congress eliminated the deductibility of consumer loan interest (credit cards, auto loans, and so forth), but HELOC and home equity loan interest was a loophole homeowners could use up to the $100K loan limit.
For BRRRR and other income property strategies, an accurate and acceptable answer might be: I'm using the money to remodel my real estate. Whether you can deduct the interest on the loan, however, is something you need to discuss with your tax accountant.
The lender is working within a set of guidelines. Each box must be checked for a loan to fund. One of which may be documenting how you intend to use cash out proceeds. They MIGHT even want it to be handwritten and wet signed.
They don't get paid unless the loan funds in most cases and the last thing they are trying to do is hassle you.
Loan Officers work FOR you but need you to work WITH them.
Like many people have already put out there. A simple "The cash out proceeds are for business purposes only. This is an investment property." is really all they're asking for.
Besides, if you are really executing a BRRR, then what in the world is there to hide?
There are a huge variety of answers which are perfectly acceptable in most cases......
I agree and get that 99% of the time you’re dealing with a loan originator who has to check their boxes per big government overreaching rules.
@Philip McCleary. On the contrary, I will opine it is the bank's business to know where their money is going beacuse it has to be paid back. banks are not in RE business but must ensure thier funds come back......
By the way, I agree with your response to tell the bank the truth...it will save you a ton of head ache if the transaction goes south! :)
3 people you must tell the truth always because they can save your life; Doctor, Lawyer and banker.... my one cent!
The bank is only giving you $ because they feel you have the ability to pay it back and if that fails, the Collateral is sufficient to make them whole
How does vacation or setting the $ on fire differ to the bank?
@Cody L. are the interest rates the same for both scenarios?
One bank I dealt with charged more for a cash out (or rather their LTV was less). So I was already bitter on this subject.
A $1m property for me to buy. they’d loan me $800k and I pay $200k. But to get it quick I pay $1m cash. Then I go to the bank to get that same $800k loan. But now it has more risk?
Know what I did? Got a LOC for $800k against cash in the bank. That way title used loan proceeds to pay off debt rather than go to me. So they viewed it as less risk. The loan paid off my LOC and I had accessto the funds all the same. Cost about $3k more in fees to do it but got it done.