Rental Property Investor · Tipp City, OH · Member since 2020 · 11 posts · 6 votes
I’m and trying to weigh out whether or not to use cash on hand or New Construction loan….
I am in the process of building two triplex townhomes buildings for a total of 6 units. I have a new construction loan in place with a rate locked at 7% percent. I have yet to take a draw from the new construction loan.
I have the funds in cash to cover the cost of the builds in a high interest saving account earning 5%. What I’m thinking is to use the cash to fund the buildings instead of paying the 7% rate and would in theory be earning 2% more than the saving account. At the time the buildings are finished and rented out I will pull all the money off the new construction loan and pay myself back.
I need to use the cash in the next 12 months to fund the build of another project so I am trying to make the best of the money over the next 8-10 months without risking the principal.
Does this make sense? Or anyone have a better idea?
@Ben Mosier yeah, I've used my own cash to do some rehab stuff rather than drawing on the loan to do so. It will save you a little bit of money but I use it this way just to avoid the inspection and draws. So, it helps make the process a little shorter. I would still encourage you to speak with your refinance lender to see if you should take the final draw after all the work is done. Sometimes that will make a difference and sometimes not.
Hope all of that makes sense but feel free to ask anything additional. Thanks!
I’m not sure if I’m understanding what you mean about talking the final draw at the end… are you saying make sure the lender doesn’t have an issue with me doing that ?
@Ben Mosier oh, yeah, I guess I am making some assumptions here. So, I was assuming you have a rehab amount built into your current existing loan that you could draw from OR use your own cash. Is that the case here?
Yes there is a total amount that can be pulled. It’s set up to be taken in 4 draws as the new build progress but I have skipped the first 2 draws so far. And I’m at the point where I need to either take a draw or pull money out of the high yield saving account to start funding it.
@Ben Mosier ok, yeah, so in that same scenario, I would just make 1 draw from my lender at the end of all the rehab. That way, I repay all the money I used in the process. Does that make more sense?
Yeah that makes sense. I guess my question was for anyone was does it make sense to use my own money to fund the deal instead of paying the interest (7%) but would have to pull it out of the high yield savings which pays 5% therefore would be a gain of 2%?
Or is there a better use for the cash in the meantime? Again I need to have the cash back in 12 months roughly to use for another project.
@Ben Mosier yeah, saving 2% for me is not that big of a deal. Now, getting my rehab done faster - that's important. To me, that's why I have used my own money in the past - to get the job done. I usually draw it at the very end so it's easier for me to rehab with my permanent lender.