New to Real Estate · Milwaukee, WI · Member since 2009 · 26 posts · 0 votes
I want to make sure i have this right. Say I buy a rehab using a hard money loan to purchase and rehab the property. And instead of selling the property i want to keep it as a rental property. But i also want to refi the property for a better loan and also pull cash out if i have enough equity. This is possible right?
Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
17y
When I've done it (working on one right now), I've used hard money. Around here, 70% max LTV based on the repaired value. Then, you have to refi.
If you want to do the purchase and rehab with no money out of pocket, and the max LTV is 70%, you need to have the purchase plus rehab under about 60% of ARV. That's because you have closing costs, points, and interest on the hard money until you can refi. Figure about six months. Then, it will be 3-4% to do the refi. Be sure you know what the LTV on the refi is. If its only 70%, then you need to hard money to be only about 65% if you want to roll the refi costs into the refi loan. Then, you would need to purchase under 55% to not come out of pocket.
Around here, this is just about impossible. Its just too competitive. No idea what its like in Milwaukee.
Realistically, if you have no cash, you should not buy rentals. Don't even try doing rentals unless you have about six months expected payments in the back. Things happen, and having a $3000 bill that has to be paid right away is entirely possible.
If you want to own a few dozen rentals, like you seem to want, you WILL have a $3000 bill every few months. Roofs last 20 years. Three dozen rentals means 1.8 new roofs every year, or one about every six months. Furnaces last maybe 15 years. That's one every five months (though mostly in the winter). Sewer lines last maybe 30 years, so that's one a year. Those have a bad habit of failing in the same neighborhood all at once.
Financial Advisor · Tampa Area, FL · Member since 2008 · 956 posts · 214 votes
17y
cash out refis are incredibly difficult to obtain on investment properties right now. also, some lenders will give pushback on a 'refi' of a hard money loan.
Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
17y
If you have good credit, and enough income to qualify, yes, doing the refi is possible. Your best bet is to work with a local, experienced mortgage broker.
I assume you want to use a new appraisal. Document your work on the rehab. Be sure there are local, recent comps that support the new value. Even so, it may take six months ownership before you can get it done.
Max LTV is 70%, maybe 75%. Don't think you'll be able to do cash out.
New to Real Estate · Milwaukee, WI · Member since 2009 · 26 posts · 0 votes
17y
thanks. Another problem that i hear investors run in to is maxing out their credit. i didn't no that was possible, could some one explain how that works and what would be my alternative if that happens to me. Also are there lenders that will still do loans with ok rates if this happens?
Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
17y
I've not heard of "maxing out your credit". There are a couple of situation where you could say that. One is if you have credit cards, and have them all charged up to the limit. That hurts your credit score. Another is your DTI - debt to income ratio. That's the total of all your debt payment divided by your total income. If that's too high, its hard to get a loan. A third would be the number of mortgaged properties. Fannie Mae currently limits this to 10, Freddy Mac to four.
Real Estate Investor · Bayou Vista, TX · Member since 2008 · 58 posts · 8 votes
17y
Take a look around for a "double close" or rehab to perm type loan. They are not cheap (compairable to a hard money) but they allow you to purchase and finance the repairs and then roll it all into a 30 year fixed. I have done several of these and they allow you to get a rental with no money out of your pocket....75% arv is the norm right now.
New to Real Estate · Milwaukee, WI · Member since 2009 · 26 posts · 0 votes
17y
Thanks chris, So your saying with a rehab to perm type loan i can get the loan to purchse the property plus extra rehab funds up to 75 % arv. which means any extra money i have left after the rehab is done i can just keep it and use it for another deal? And also roll that loan over to a regular 30 year fixed loan. which means i don't have to refinance because it's already a regular loan now.
I'm just making sure thats how it works.
If so just reply with a yes.
Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
17y
When I've done it (working on one right now), I've used hard money. Around here, 70% max LTV based on the repaired value. Then, you have to refi.
If you want to do the purchase and rehab with no money out of pocket, and the max LTV is 70%, you need to have the purchase plus rehab under about 60% of ARV. That's because you have closing costs, points, and interest on the hard money until you can refi. Figure about six months. Then, it will be 3-4% to do the refi. Be sure you know what the LTV on the refi is. If its only 70%, then you need to hard money to be only about 65% if you want to roll the refi costs into the refi loan. Then, you would need to purchase under 55% to not come out of pocket.
Around here, this is just about impossible. Its just too competitive. No idea what its like in Milwaukee.
Realistically, if you have no cash, you should not buy rentals. Don't even try doing rentals unless you have about six months expected payments in the back. Things happen, and having a $3000 bill that has to be paid right away is entirely possible.
If you want to own a few dozen rentals, like you seem to want, you WILL have a $3000 bill every few months. Roofs last 20 years. Three dozen rentals means 1.8 new roofs every year, or one about every six months. Furnaces last maybe 15 years. That's one every five months (though mostly in the winter). Sewer lines last maybe 30 years, so that's one a year. Those have a bad habit of failing in the same neighborhood all at once.
Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
17y
Simple answer: no.
Maybe if you own it for a year after you refi. Doing cash out refi's on investment property is VERY difficult.
If you're reading a book or some guru material that talks about doing cash out refis, you need some newer material. That worked when prices were rising. Denver came out on top in the latest Case Shiller data. We're only down 6% year over year. Other places are all worse, with Phoenix down 20something%. Its hard to just do the refi and pay off the old loan. Getting cash is nearly impossible.
If you have a 70% LTV loan, and the property falls 25%, guess what? You'll have to pay to sell! Lenders don't want you to take away any cash and leave them holding the bag.
Investor · Albuquerque, NM · Member since 2009 · 118 posts · 43 votes
15y
Originally posted by Jon Holdman:
If you're reading a book or some guru material that talks about doing cash out refis, you need some newer material. That worked when prices were rising.... Getting cash is nearly impossible.
Jon, I came across this while researching a cash out refi for my commercial investment. Looks like this post is 21 months old. Is it still true today?
Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
15y
I think so, but I don't know for sure. The last refi I did was at the very end of 2009 and it was such a pain the fanny that I've given up on this approach. I'm pretty sure you're going to have to own the property for at least a year to get cash out.
SFR Investor · CB, IA · Member since 2011 · 91 posts · 42 votes
15y
I think it depends largely on your geographical area. I recently found a local credit union that gave me a couple options.
1. HELOC for 75% of assessed value based on county assessors page (15 year draw).
2. Finance for 75% of appraised value.
They don't have any seasoning requirements and don't seem to care what I paid for them. I bought one of the houses for 14k in December 2010 and I'm in the process of financing it for 45k. These are NOO investment properties. Houses have to be within 100 miles of their main branch.
Real Estate Investor · Houston, TX · Member since 2011 · 23 posts · 2 votes
15y
In the Houston area there are a number of HML's who put together the hard money/refi loan packages together. The only "concession" they make is that you can possibly get into one with a FICO in the mid 600 range. Every one of them that I have talked to are asking for at least 10-15K in reserves.
Working with a lender for several months now I have my mid score @ 730-740 and the cash is close. The lenders are looking at max ARV for the HM loan of 70% and some will refi at max 75%. There is a possibility that you could "possibly" come out with a couple bucks at refi, but you could also essentially get a rental unit with no net cash OOP. Each and every one is firm on the cash requirement though. Getting ready to start looking actively for my first rental.
Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
15y
If an HML will give you 70% of ARV, and you can refi at 75%, then your purchase plus rehab will need to be around 55% of ARV to be into the deal with no cash out of pocket.
Why? Because you have up front costs, which include any inspections, insurance, appriasal, and closing costs. The HML will typically require several points. And you will have interest payments from the time you purchase with the HML until you can refinance, which is probably a minimum of six months.
If you go down this road, you need to be very conservative with ARV. When you go to refi, you will be dealing with an HVCC appraiser assigned by the bank. Values on appraisals are tending to the low side. Use the lower end of your possible comps, because that's what the appraiser is going to use.
Real Estate Investor · Houston, TX · Member since 2011 · 23 posts · 2 votes
15y
Jon: Where can one go to get info on how to project costs/cash flow on hard money/refi loans as we are discussing using different assupmtions for carrying costs -rents etc.? Thanks.
Real Estate Investor · West Des Moines, IA · Member since 2009 · 55 posts · 21 votes
15y
I'm in the process of a cash-out refi with Wells Fargo. They are possible but there are a ton of restrictions and take A LOT of time with the underwriting process (we are going on 60+ days now).
WF requires several things for a cash-out refi:
1. Own property more than 1 year (no way around this).
2. They will cash out up to 75% LTV.
3. House cannot have been on the market within the last 6 months (we were able to get around this as my property was only off the market for 4 months...maybe they figured it would take another 4 months to close!)
4. The documentation and paperwork is amazing. UW needs confirmation/paperwork on nearly every aspect of the property/loan process.
5. Good credit score and DTI (obvious one).
So it's possible under the right circumstances but it is a difficult and slow process.
Investor · Cincinnati, OH · Member since 2010 · 1k+ posts · 928 votes
15y
I posed the following questions recently to my US bank conventional lender:
• If I buy a 4-unit property for cash, do a bit of rehab, then get it leased up to solid tenants, how long of a period has to elapse before I can do a cash-out refinance? "6 mo."
• Same question as above, but what if I financed the 4-unit with a private lender, how long of a period has to elapse before I can do a rate/term refinance? "30 days but 120 days before you do not have to use purchase price as value"
• Same question, except what if the private lender is a related party. Does that matter for being able to do a rate/term refi? "No."
I asked the last question because a friend and I were considering forming a hard money lending entity, wherein I might contribute 25% of the capital, and he 75%. If this entity loans to me on a purchase transaction, then based on the answer I received it appears that I can do a rate/term refi in a shorter time frame after purchase date than if I purchased using my own cash.
Does anyone disagree? And this is in the context of a conventional 30-year fixed conventional loan, not community bank portfolio loans with 5-year fixed rates.
Investor · Willow Spring, NC · Member since 2009 · 5k+ posts · 3k+ votes
15y
Originally posted by David Beard:
I posed the following questions recently to my US bank conventional lender:
• If I buy a 4-unit property for cash, do a bit of rehab, then get it leased up to solid tenants, how long of a period has to elapse before I can do a cash-out refinance? "6 mo."
• Same question as above, but what if I financed the 4-unit with a private lender, how long of a period has to elapse before I can do a rate/term refinance? "30 days but 120 days before you do not have to use purchase price as value"
• Same question, except what if the private lender is a related party. Does that matter for being able to do a rate/term refi? "No."
I asked the last question because a friend and I were considering forming a hard money lending entity, wherein I might contribute 25% of the capital, and he 75%. If this entity loans to me on a purchase transaction, then based on the answer I received it appears that I can do a rate/term refi in a shorter time frame after purchase date than if I purchased using my own cash.
Does anyone disagree? And this is in the context of a conventional 30-year fixed conventional loan, not community bank portfolio loans with 5-year fixed rates.
David, for sure, this would not be an "arms length transaction" and deep in the bowels of underwriting hell is the complication that you would need to disclose your ownership stake in the entity in question (e.g. at least via 1003 application.) Maybe the underwriters wouldn't catch it. Maybe you're Okay. If you chose to not disclose your ownership... well... that may be considered (depends on circumstances and maybe the guy in the robe if the loan goes afoul) loan fraud.
I do know that I haven't applied for a 30-year conventional mortgage in 5+ (7??) or so years... when I was well past 10 FNMA mortgages... that commercial lenders with their "5-year fixed rates" are eager to lend to people like us who are on the 'right side' of this massive RE wealth transfer, and that most likely US Bank (retail side) will sell this loan -- so a "No" to the last bullet will just mean you may get denied in underwriting (not from the loan broker/officer) if they detect a problem, meaning no loan for your deal. These all things my commercial lender or private lenders doesn't care about.
Investor · Cincinnati, OH · Member since 2010 · 1k+ posts · 928 votes
15y
Chris -- thanks, I discovered later that you're correct, the underwriter recanted and indicates that the related party issue is indeed a problem. Believe me, I have no attempt to do anything even remotely questionable, and I was surprised by their initial response.
I've just turned my attention to real estate in the last six months, and have begun to build a portfolio, with five properties, including two 4-unit buildings and the other SFRs. So I'm pretty close to maxing out the conventional channel.
I have submitted my financial information to a regional bank and am lined up to expand with the 5 to 7 year product as soon as I've exhausted conventional financing -- probably the next deal. You're right that they seem eager to lend, and have no problem lending to my LLC with a personal guaranty. The rollover/rate risk does bother me, as rising rates could (in the short term) rapidly outpace your ability to reset rents higher in an inflationary environment.
near Philadelphia, PA · Member since 2011 · 78 posts · 33 votes
15y
Originally posted by Mark B:
Originally posted by Jon Holdman:
If you're reading a book or some guru material that talks about doing cash out refis, you need some newer material. That worked when prices were rising.... Getting cash is nearly impossible.
Jon, I came across this while researching a cash out refi for my commercial investment. Looks like this post is 21 months old. Is it still true today?
As the real estate and mortgage crisis exploded, mortgage underwriting has become tougher and tougher. So the answer is yes, it's still true today.
Just getting a loan on a primary residence is a paperwork monster.
c/o on an investment prop can curl your toes. The borrower MUST have his ducks and dogs and lambs lined up tightly in a row - assuming the borrower is interested in the lowest rate Fannie/Freddie loan. The documentation is off the charts.
It will be impossible to get c/o on an investment property if you can't show you already have some reserves. Catch-22 yes. But for an investment prop, you will have to have some money to get some money. Underwriters don't want to see that the borrower is down to their last nickel and is trying to now get cash from the prop.