Charlotte, NC · Member since 2018 · 4 posts · 4 votes
As I understand it, the Refinance step is to pull out capital from my rental house, which has no mortgage, to build capital to use for my next property purchase, correct? What kind of a loan is that? Is the range of 70-80% what I should try to find? Do I have to know what property I'm going to buy? Any help from someone who has done this would be greatly appreciated.
Real Estate Broker · Tampa Bay/St Petersburg, FL · Member since 2015 · 1k+ posts · 2k+ votes
6y
You are generally looking for a conventional cash-out refinance at 75% LTV. This is a very common loan product offered by pretty much all mortgage lenders/brokers.
It has nothing to do with the "next" property you want to buy. You could use the funds for whatever you want.
The idea is to place debt (in the form of a mortgage note) on the property you bought, renovated, and rented out to recoup some (or all) of the funds you spent on the purchase and rehab.
Example (these are based on actual numbers from one I just completed):
1. Property bought for $120k
2. Spent $32k on rehab
3. Rented property to a tenant for $1500/mo
4. Property appraised at $186k after rehab, allowing me to pull out $139,500 (75% of its value) in cash from my equity in the property.
So my "all in" cost was $152k, but I recouped almost $140k of that on the refinance. Thus I only have $12k tied up in the property (making my "cash on cash" ROI very attractive).
If it had appraised for $200k (allowing me to pull out more like $150k on the refi), I would have had almost no money in the property, making the cash on cash return near infinite.
You also have to account for any financing costs and payoff of the initial loan if you use hard/private money on the initial purchase (which it appears you didn't, if you have no mortgage on the property), but the model is still the same.
Taking that a step further:
On a $140k mortgage at 4% interest for 30 years, my principal and interest payment is $668. Add taxes and insurance, and I'll have approximately a $1000/mo PITI payment, on a rental that's already leased for $1500/mo. I'm good to go.
Charlotte, NC · Member since 2018 · 4 posts · 4 votes
6y
Thank you Jeff! You explained this and gave examples in a very easy to understand way. I appreciate it and will begin looking to do this in the very near future.
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