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?
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.
Wow. They're telling you how to buy houses without pulling any money out of your pocket and that doesn't get you jazzed up?
The quick answer - as you've seen - is if you want to grab cash, you have to look to flip. I don't even bother in my area. Not that I haven't seen a couple of possibilities to do it. Its just not my business model. Why go after 10-20k now when its really going to be worth between 80-100k when it comes back to normal again.
Hold on to it, make $300 to $400 a month without paying anything out of pocket and wait for the market to come back and start moving. Then again, considering you're buying these houses with no money out of pocket, why sell at all - unless you want to move up to multifamily and need the down payment.
But consider this, too. There was an article out recently that said that rents were going to be going up 10% over the next year or two. Add another 100-150 a month to that cash flow and this can be a life changer.