cash out refinancing strategy
I was thinking about a new strategy for growing a rental portfolio and was looking for some advice. I want to purchase REOs with all cash fix them up, rent them out, then pull my original investment out, or at least a substantial part of it so I can do it all over again. What I don't know are the banks restrictions. First do I need to wait a year before I can pull out the equity? What LTV will the banks require, meaning how much can I pull out? How many times will traditional banks allow me to repeat the process? Are there any pitfalls that I should be aware of? Thanks.
For example, if I purchase a house for 40k, put 20k into it and have a ARV of 80k. I then put a renter in for 1200 per month. Can I pull out my original 60k investment?
#4 All Forums Contributor
- Plymouth, MI
Originally posted by @Pyrrha Rivers:I'm reading this thread several months later as you see, but hope to revive the lively discussion in this thread @Joe VilleneuveI have the same question as @Account Closed didn't add my @name to his post so I never knew he asked that question.
ARV is usually determined by the most recent sales comps in the immediate area. The criteria may change based on each location, but the standard criteria for these comps are usually:
- Sold within the last 60 days
- Within a mile of the subject property
- In the same City (properties within a mile but in a different city don't count)
- Within 10% of the sq ftg of the subject property
The lender then has his criteria for lending, but the loan amount is usually based on the following criteria:
- ??% of the ARV (See above). This "%" can be between 60-80%, but usually falls between 70-75%.
- Subtract any existing liens on the property (if you bought and did rehab in cash, then subtract "$0")
- Subtract any fees they "roll into" the loan.
I'm almost at the 6 month point of my last purchase. I did it with all cash, extensive rehab included, so my cash is tied up in there and once I refi this property I intend on using your method.
I didn't know I could get a line of credit on a just acquired property!
Thank you!
#4 All Forums Contributor
- Plymouth, MI
Originally posted by @Pyrrha Rivers:
I'm almost at the 6 month point of my last purchase. I did it with all cash, extensive rehab included, so my cash is tied up in there and once I refi this property I intend on using your method.
I didn't know I could get a line of credit on a just acquired property!
Thank you!
Actually, my method isn't using LOC's...it's using REFIs.
Steps:
1 -Cash in
2 -Buy/Rehab
3 -Refinance Cash Out
4 -Use on next property
5 -repeat above steps
Originally posted by @Joe Villeneuve:
Originally posted by @Pyrrha Rivers:I'm almost at the 6 month point of my last purchase. I did it with all cash, extensive rehab included, so my cash is tied up in there and once I refi this property I intend on using your method.
I didn't know I could get a line of credit on a just acquired property!
Thank you!
Actually, my method isn't using LOC's...it's using REFIs.
Steps:
1 -Cash in
2 -Buy/Rehab
3 -Refinance Cash Out
4 -Use on next property
5 -repeat above steps
Oh!
The 5 steps above are what I used for my first two deals starting with a HELOC and some savings to buy property #1. Waited 6 months to refi, pay back the HELOC and then had cash for property #2 but as I said my cash is tied up because the purchase price was much lower than the ARV due ti needing a full rehab, so I thought I would try the technique you described before of getting a LOC immediately after purchase #3 to keep the money moving. I only have 2 purchases per year in my plan, but freeing up the seed capital quickly would enable me to buy the second property if it came along soon after the first for that year.
Originally posted by @Joe Villeneuve:
Yes...but only the original cost you put in. To do a cash out you need 6 months seasoning...which is shy I do the Equity Loan out of the gate so I can out my cash back to work ASAP
Hello Joe,
I have done this on a couple of projects where I have bought all cash, rehabbed , waited the 6 months and then refi'd. Going forward, I would like to get the cash out sooner than 6 months.
How does the equity loan Equity Loan achieve this? Is it because it creates a lien on the property and then by satisfying that lien, I am able to refi sooner? Can it be a HML that is opened and closed in an hour? Seems a little dodgy but brilliant if it works.
Tom Camarda
Originally posted by @Joe Villeneuve:
Originally posted by @Marc Jolicoeur:I have not done one yet but I believe if the investor is Freddie Mac, that you can do "Delayed Financing" where you buy with cash today and refi after the rehab to get your 75% cash out based on new appraised value.
You do not need to wait the 6 months seasoning!
Yes...but only the original cost you put in. To do a cash out you need 6 months seasoning...which is shy I do the Equity Loan out of the gate so I can out my cash back to work ASAP
Hello Joe,
I have done this on a couple of projects where I have bought all cash, rehabbed , waited the 6 months and then refi'd. Going forward, I would like to get the cash out sooner than 6 months.
Does the Equity Loan achieve this? Is it because it creates a lien on the property and then by satisfying that lien, I am able to refi sooner? Can it be a HML that is opened and closed in an hour? Seems a little dodgy but brilliant if it works.
Tom Camarda
#4 All Forums Contributor
- Plymouth, MI
Originally posted by @Tom Camarda:
Originally posted by @Joe Villeneuve:Originally posted by @Marc Jolicoeur:
I have not done one yet but I believe if the investor is Freddie Mac, that you can do "Delayed Financing" where you buy with cash today and refi after the rehab to get your 75% cash out based on new appraised value.
You do not need to wait the 6 months seasoning!
Yes...but only the original cost you put in. To do a cash out you need 6 months seasoning...which is shy I do the Equity Loan out of the gate so I can out my cash back to work ASAP
Hello Joe,
I have done this on a couple of projects where I have bought all cash, rehabbed , waited the 6 months and then refi'd. Going forward, I would like to get the cash out sooner than 6 months.
Q: Does the Equity Loan achieve this?
A: Yes...usuallyQ: Can it be a HML that is opened and closed in an hour?
A: No...why would you do that?
Originally posted by @Joe Villeneuve:
Originally posted by @Tom Camarda:Q: Does the Equity Loan achieve this?
A: Yes...usuallyQ: Can it be a HML that is opened and closed in an hour?
A: No...why would you do that?I guess a better question is how to avoid the 6 month seasoning?
TC
@Joe Villeneuve - Can you please refer me to the lenders you work with? The one who lends the Equity Loan right after the purchase and rehab, and the lender that you do the cash-refi after the seasoning period.
Thank you!
I'd like to know the lenders as well because the banks in my area laugh when I bring this idea up. They said there's no way it's possible.
#4 All Forums Contributor
- Plymouth, MI
For those looking for my source for the above reference to a quick equity loan...unfortunately it no longer is an option. They pulled that "product" about 2 months ago. Lenders will do that when a product gets too popular to keep their lending portfolio balanced.
I always compare this to setting the odds in Vegas. When the betting is one sided, the odds change to attract the bets on the other side. The odds makers want the bets on both teams as equal as possible. This way the can't lose. Banks want their portfolios as equally balanced as possible. This way, a major change in the "connections" to one particular product they sell doesn't cause as big a problem to their overall business.