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Use the equity or put 20% down
I'm just getting started and trying to determine the smartest way to scale up quickly. I have a offer submitted on my first rental property, which is a duplex. I'm planning to pay cash, turn around and finance it, and use the cash again to purchase the next property. Any recommendations on letting the equity work and keeping my cash instead of putting 20% down when I do refinance?
Quote from @Bridget C Creighton:
I'm just getting started and trying to determine the smartest way to scale up quickly. I have a offer submitted on my first rental property, which is a duplex. I'm planning to pay cash, turn around and finance it, and use the cash again to purchase the next property. Any recommendations on letting the equity work and keeping my cash instead of putting 20% down when I do refinance?
Hey Bridget,
I am a little confused on your question.
Are you saying you would like to buy this property in cash and refinance it to buy the next, and only put 20% down for the next purchase? Doing a cash offer will be better to get your offer accepted quicker. Most lenders will only allow up to 75% LTV for a cash out refinance.
Hi Bridget - if I understand you correctly, you're asking how to roll over as much capital as possible while purchasing properties. The best way to keep your capital rolling from one property to the next would be to buy the properties and rehab them before refinancing. If you can effectively raise the appraised value, you will be able to take out your original capital while still keeping 20% down on that property.
Hypothetically, let's say you bought a property for $100k and put $15k into renovations (leaving you with a total investment of $115k). From your $15k in rehab costs, you effectively raised the appraised value to $150k. Then, from there you cash-out refinance 80% of the equity, leaving you now with $120k to roll into your next deal, all while you're collecting rental income from property 1.
I hope this helped answer your question!
- Real Estate Agent
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Thank you, that makes sense.