cash out refinancing strategy

[Daniel Levine]

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?

[Joe Villeneuve]

Originally posted by @Tammy Vitale:

I don't pay 100% cash.  I use 25% down conventional loans so I don't need a heloc to get the equity back because I never put it in.  I can get a loan at 6 months but based on the original purchase price of the property, not purchase plus rehab.  After one year I can take $$ out based on a new appraisal.  That's just my experience. And I pretty much stick with one lender because she makes it so easy for me up front.  And I'm not doing more than one purchase a year, most years, anyways.

 I do all cash in, and get it all back out with the refi...then use the same cash on the nest deal..repeat, and repeat, and ...in the end I never spend any money.  All the deals have NCF over $300/month with a property manager in place.  I don't need new cash since I use the same fash over and over again.  This also means I can, based on property availability, do all 10 deals within a years time (in theory).  Due to negotiations taking time, and rehab timing, the average is between 4 - 7 per year...never spending the money, using the same money.

The numbers:

Average cost per deal including rehab, fess, etc...)          $50,000 - 60,000
Average ARV $80,000 - 92,000
75% REFI (6 month)                                                          $60,000 - 69,000
Average cash out at refi, an additional...                           $ 3,000 - 10,000
Average number of houses per year                                        4  - 7
Minimum added NCF per year (avg. $300/deal)               $  1,200 - 2,100/month
Equity is still around 25% per property

Cash spent total per year                                                    $  0

One of the many added advantages to this strategy is I can outbid most other offers since I can offer more than the AP, as long as my total cost doesn't exceed the 75% of the ARV, since I get it all back at refi.