Cash-Out Refi w/o 6-mo Seasoning Period

18 Replies

Hi All,


I'm close to an offer on a BRRRR deal but am hung up on the second-to-last R! I've read up on the Delayed Financing Exception (excellent post on that here ) but unfortunately you can only get your purchase price back out, not the full 75% of appraised value.  So you'd still be paying for the rehab in cash...a no-go if you want to Repeat quickly!

Are there any good strategies for getting a cash-out refi (75% LTV) on the of appraised value immediately after tenant placement? Any new ideas/suggestions would be appreciated. Here are two that could work but I'm not sure about:

I could do a refi for the purchase price immediately, then a full refi 6 months later.  Unfortunately this would incur a lot of extra closing costs...probably $2k-$3k, right?  Say $50k purchase price and $25k rehab.  Would love to do this if y'all think closing costs could be significantly lower.


I've also heard of investors getting a loan from an LLC for the full purchase + rehab price (deed filed at county courthouse), then coming to their lender or bank for a refi once rehab and tenant placement are done...in this scenario there aren't seasoning period restrictions since there's already a loan in place when you run title. Have any of you done this successfully or know someone who has? It seems like this would be SOP for the BRRRR strategy but I haven't seen it discussed much.

Many thanks!

-Brian

In order to get 70-75% LTV on a cash out refinance based on the ARV you have to complete the rehab first.

Some credit unions will do a 75% LTV HELoan based on appraisal value immediately after the title is in your name (not based on purch price and no seasoning required). Also, as soon as the rehabs are done then you can do a HELoan refi with the 75% LTV based on the After Rehab Value. Its usually possible to get all cash out and maybe some additional cash if you really pushed the ARV up enough with the proper rehabs and good comps! Credit Unions are great and the rates aren't bad either...5.5% and closing costs are around $750 for each refi.

Hi Brian,

I'm glad I stumbled across this post.

I've done about 6 BRRRR properties in the last year or so.

As you know already, for a conventional loan you need 6 months seasonal. That's not gonna work for us who want to buy multiple properties per year.

You need a porfolio loan. These small banks use their own money and hold it in their own portfolio (hence the name), so they don't need to confirm the loan to sell to secondary markets.

I've called around to about 30 banks until I found the right one. As of now the terms we are getting are: 80% LTV (APPRAISED value not purchase), 20 year am, 5 year arm (stays fixed for 5 years then adjust to prime plus 2)

There's Pros/Cons to Portfolio Money

Pros:

-LTV on Appraisal (no money left in the deal if you keep in within the 75-80 LTV)

-No seasoning

-Relationship based so they are generally easier to work with. They also understand REI and what you're trying to do.

-No limit on number of properties. You can even get a blanket loan to include several properties under one loan number.

Cons:

-Higher Interest and shorter amortization. This makes it hard to cash flow. Portfolio loans are essentially commercial loans being used for residential property so no wonder it's hard to cash flow. 

-Interest rates will likely increase.

-Cash-out refis usually have slightly higher closing cost.

-It can be hard to find a lender to does these or even knows what you're talking about.

-You will still need to fill out an application, personal financial statement, have good credit and DTI . If you don't have those than you will need to find an equity partner.


Please fill free to send me a PM if you have any questions!

IS the property already repaired? if so you can get the refi done at 70 to 75% of the LTV with 0 seasoning with some lending groups.

@Brian Bistolfo

Here is what I was told by a guy named Robert Sepulveda in response to what he posted about getting your cash even for the rehab cost using the delayed financing exception. This link will take you to the thread so you can follow along. Hope it helps. 

https://www.biggerpockets.com/forums/49/topics/192930-delayed-financing---what-to-what-out-for?page=1#p3105368

@Brian Bistolfo Thanks for the question Brian.  I'm trying to figure out the same thing right now so this thread was really helpful.  Any update on what you ended up doing?

Originally posted by @Brian Garrett :

In order to get 70-75% LTV on a cash out refinance based on the ARV you have to complete the rehab first.

 This is generally true, but there is always the exception to the rule...... we just closed on a deal where the bank funded us the purchase and rehab cost up front structured like a construction loan with 6 months interest only then it automatically rolls into a traditional loan. The best part was the payment up front at closing 

Originally posted by @Brian Garrett :

@David D'Errico That's not a cash-out refinance. It's a totally different loan product.

i recieved cash over and above the cost of purchase and rehab based on ARV ....... that's cash out .....it may not be exactly like the traditional Cash out refi model but it was the same result

@David D'Errico that is exactly what I need. I've been going the Homestyle route for an owner-occupied duplex, which has been a six month headache & contracts aren't even signed yet. I'm new to these forums & not sure if it's OK to share, but if so, I'd like to know which bank you worked with in case they cover my area in Indiana.

Hey @Deanna Sapp I used First Harrison Bank,  they are local in the Corydon and New Albany area. Ask for Jeff Thomas

Hey @David D'Errico. Which branch is Jeff at? Do you know if they will do Louisville properties too?

@David D'Errico Thanks for sharing. How long was the process? Does it matter if thet are involved before or after the close?

@Aaron Hans  the process took about 3-4 weeks.... I would guess it doesn’t matter when they get involved but the earlier the better so they can walk you through the different options you have with lending 

@David Heath Jeff is at the Grantline branch and yes they loan on property in Louisville as well

I know I'm late to this thread but wanted to post because I recently found a newer commercial lender who will lend off of the appraised value after only 3 months seasoning! This will be a game changer for BRRRR strategists who complete their renovations and get the property rented out this quickly. Seems a few funding sources are trying to leverage this as a competitive advantage.

Some banks are willing to accept a cash out refinance at appraised value as soon as a property as been rehabbed and rented. That being said, most want some sort of seasoning period and I'm seeing fewer and fewer banks willing to make such loans right now. On a side note, I know that Lima One Capital, which a national lender that focuses on SFR loans, will do a refinance on appraised value after 6 months of seasoning. They require at least 5 properties and a $500,000 loan though.

I've worked with several national lenders that don't require seasoning, W2s or tax returns and it really accelerated the growth of my portfolio.  Dealing with traditional banks is great at first but once you start building a portfolio it gets harder and harder to get loans with them.  Message if interested.

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