Cash out Refinancing Strategies

4 Replies

All, I have a question regarding cash out refinancing as a means to hopefully provide investors with a return on capital. My question is; is there a rule-of-thumb or ideal acquisition structure that would help you get to a 100% return on capital? I understand the NOI implications in getting a higher appraisal.

So, is there an ideal LTV to get when you acquire the property to help you get 100% return on capital? Meaning 70%LTV year 1 -> 75%LTV year 3 (refi). Or 75%LTV to 75%LTV. Generally speaking what measures do you take during the acquisition of the asset to help stack the odds in your favor?

I would greatly appreciate any and all feedback!

Updated over 2 years ago

My question pertains to Multifamily assets. I currently own a 56-unit complex and am looking for a 75-120 unit deal.

@Daniel G. it's all about the value of the property when you acquire and at the time you re-fi...and you mentioned NOI...only relevant if you are 5+ units (for valuation anyway). What type property are you looking at?

A typical re-fi on a non-occupied property will be 70-75%LTV (if you can find better let me know). So just make sure you buy right...if you are buying at 60% ARV and the market stays strong where you are at...and if you do things like force appreciation through improvement, you should be fine. I would need to know numbers to provide any more of a detailed response as to whether any particular investment is a good one...

@Brandon Sturgill I am looking at Multifamily, 75 - 120 Units. So, is this purchasing at 60% of ARV something that you follow to help stack the odds in your favor? Could you expand as to what thought goes into this? Thank you.

No magic sauce here. Just have a good idea of what it appraises for after rehab and have a good idea what it rehabs for. Not sure your experience level, but if the rehab if it's a big one will very difficult to gauge properly unless you hire some retail contractor. The appraisal value your realtor can help you with or look at the Sold properties on Zillow and guess at your own.

You can do this successfully, but it usually is tough in your first one. Big rehabs done cheaply is one way to accomplish this, the other is a super good deal with retail construction costs. 70% of the ARV doesn't ever change. You just can pick what slices are rehab and what slice purchase.

Good luck!

@Daniel G. Nope. ARV on a large multifamily is irrelevant...likely. A property of that size is valued by the income it produces...piece of cake. However, I would caution that a lender re-financing your property will be super conservative...and the appraiser can consider other comparable sales...even if your property has a CAP rate that says it is worth $600k...if similar properties are not selling at $600k, odds are you're not getting a re-fi based on the income the property produces alone.

That said, increasing rents increases there needs to be an upside...what do the units rent for now...are you renovating any...and what are the potential rents...that's your silver bullet. 

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