Cash Purchase with immediate 100% refinance based on ARV

[Carlos Webel]

Dear all,

I’m trying to make a model workout to maximize the quantity and the speed at which I can acquire rental properties in Texas. A typical deal would be structured the following way:

- Purchase Price: 90k$

- Rehab: 10k$

- Closing costs: 3k$

- Total acquisition cost ~103k$

- After Repair Market Value (appraised value) 135k$

- Refinanced amount based on 75% LTV: 135 x 0.75 = 101.25k$

In the example above I end up buying for almost no money down. The intention is to buy the properties cash using a combination of available cash and a stocks backed loan by a local bank and then re-finance them as quick as possible taking out as much cash as possible for the next purchase. The properties are being purchased under my personal name to maximize the use of conventional mortgage loans (10 for myself and 10 for my wife).

As you can see, the intention is to recover almost (or all) all the cash put in on the acquisition to re-invest in the next property as quick as possible. However, most lenders I've talked to will require a seasoning of around 1 year before I can cash out refinance. The ones that will work with immediate refinance will typically just refinance 75% of the purchase price which would be 75% of 90k in the example above, meaning that I can only take out 67.5K$, that means 35k$ down with every acquisition which will put a limit on how many properties we can acquire with the cash we can make available. The other option I have used in the past for 100% (or close to it) financing is to use temporal to permanent loans with hard money lenders, those allow me to get most of the cash out "quick" but they charge a significant amount of money in points and interest rate for the temporary loan making the deal much less attractive.

Buying the properties cash allows me to make the deal lot more attractive because it has less cost associated with it. I'm looking for alternative ideas on how to go around the seasoning requirement to get the money out for the next purchase. One idea that was suggested by a seasoned investor was to form a separate entity (a separate LLC) that will act as my hard money lender. So I can buy the property cash using that entity, that entity will have a note on the property and as such I wouldn't be effectively buying the property cash, allowing me to refinance immediately based on the appraised value of the property. Has anyone around worked out an arrangement like this effectively. Of course, I would only consider it if it's 100% within the legal and ethical boundaries.

Any suggestions are welcome.

Rgds, Carlos

[Jerry Padilla]

@Carlos Webel

@Steve S.

You are not talking to the right lenders than. You can cash out on full appraised value after 6 months.

Prior to 6 months if you paid cash only and can source the funds to purchase.

Delayed Financing-

The new loan amount is not more than the actual documented amount of the borrower’s initial investment in purchasing the property, plus the financing of closing costs, prepaid fees, and points (subject to the maximum LTV).

Your 90k purchase + 3k closing costs would be your max cash out prior to 6 months.

Both prior to and after 6 months are based on the current appraised value. Delayed financing just limits you to the max of the 93k no matter where the appraisal comes in.

Here are the required LTV's for both.

SFR mortgaged property #1-6 - 75% LTV

2-4 unit MFR mortgage #1-6 70% LTV

Also forming the LLC - will not allow you to do anything conventional with the property prior to 6 months.

You are not limited with seasoning for a rate and term refinance..... So if you have enough liens on the property you can refinance them all as a rate and term.