When and how to pull money out of investment properties

Question

Hi all!

Basically I am looking to take cash out from the homes I have that are paid off. The homes are all investment properties, that I have never lived in.

I began investing in rental properties earlier this year in TN, using the cash from my first home flip in CA.

I own 4 rental properties ,all of the properties are rented out, 3 with 2 year leases.

I do not own the residence I personally live in.

The rental properties are all owned free and clear, which is great, but now that leaves me with hundreds of thousands tied up in these homes.

I also only have tax returns for one year prior due to living out of the country and having not much to report about, hence me investing all cash in the first place. That wouldn't have been my first choice.

I was very close to doing a non-recourse loan, with a 7.99% rate- but I feel like if I keep researching I can figure out a better way to finance and leverage !

Is refinancing an option? What about a HELOC ? Or a Home Equity Loan?

My goal is to continue swooping up investment properties, leveraged, with the best interest rates possible.

Thanks for reading, and thanks in advance for any advice/ feedback/ questions!

Sarah

Stephanie P. · Answer

@Sarah R.

Refinancing is a great option to get your money out, but you won't qualify for a conventional loan for a little while (you need two year's income history). A portfolio lender will work for you, depending on your credit. Most have no income verification options and some have limited seasoning requirements. Rates and fees are higher than conventional, but if that's not available, then portfolio is the next best thing.

There are numerous scenarios that may fit your situation (30 year fixed, ARM, HELOC). Get together with a good mortgage broker because what may work for one company, may not work for another.

Congratulations on your success and I hope this helps

Stephanie

Bob Okenwa · Answer

Hi Sarah,

If there is equity (20% or more) in these homes, a cash out refinance is a good option. Getting a HELOC on a rental property will give you about 65%-75% LTV on the property as most lenders don't go as high on a rental HELOC as they do on a personal residence. Of course, you'd have to contact a few lenders and ask specifically what they have to offer as there is a lot of variance across the board.

Ali Boone · Answer

Hey Sarah! Well first, you sound super cool. Living out of the country, you live in Topanga which I LOVE, and you have already bought 4 properties. I'm in Venice and all my properties are elsewhere too.

As for the financing, that's a tough one. The best thing would be if you had someone willing to cosign on a mortgage and you could cash-out refi all of them with the best interest rates. I've done that and it works super easy...it's just an issue of you have to put the cosigner on the deed to the property. Nothing wrong with it as long as they are cool with it, but it was a little bit of a logistical pain with both our names on everything for a bit while we sorted out mailing addresses and such.

If that's not an option, the non-recourse loans are an option IF the interest rate doesn't end up costing you more than you're making on the properties you buy with that money, and watch out for ARMs. Those can be dangerous. Fixed is the absolute best way to go if possible.

One other option is taking on a partner. Not sure how you'd offer it to someone exactly...but if someone qualifies for a mortgage, maybe offer them something in return for cosigning or taking a mortgage out for you and you guys being partners. I have a partner on some of my properties but it's a little different of a situation, although it was based on one of us being able to take the mortgage and the other one having the cash.

Man, I love Topanga!!

When and how to pull money out of investment properties

When and how to pull money out of investment properties

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