Cash Out Refi on Four Unit Current Conventional Loan

10 Replies

Dear Fello BP Community,

I am somewhat new, we've had our first fourplex for around 6 months now and have just completed rehab on two of the four units, with the plan to rehab the remaining two. We've had some great success with increasing the rents so far, both original units pre rehab were pulling in $675/mo, after remodel we are at $995 and $1,100 respectively. However, they both had a LOT of rehab, we spent $14k on the first one and $16k on the second, with new kitchens, bathrooms, appliances, flooring, paint, lighting, electrical panels. We've also just replaced three complete HVACs for $9k. So far we are at around $43k in rehab including landscaping and exterior repainting. We will be starting rehab on the third unit in January and this needs around $10k-$11k. The last (fourth) unit will be around $7k. This puts us at around $60k total rehab. With all of this calculated with new increased rents, we will be at around 12.7% CoC and $1,365/mo cashflow at a cap of 9%.

We used a HELOC from our primary residence to pay for the rehabs and we would like to pay this off ASAP, so I was considering our options with a cash out refi. We purchased with a conventional loan at 4.8% with 20% down, purchase price was $275k. We owe around $204k, we've increased rents from $2,765/mo to potentially $4,100/mo. With the value adds done, I would predict the ARV to be around at least $350k, but this is being conservative and not factoring the rent increase to the value.

Do these numbers sound feasible for a cash out refi? Any other approaches recommended? 

Many thanks!

Matt

Most lenders do between 70-80% LTV for a cash out refinance.

So if the property appraised at $350k you would be able to get $245-280k out.

This is a 4plex so it's not valued on cap rate it's valued strictly from comps.

70% max cash out for 2-4 units. The lender will go with current appraisal value. 

Originally posted by @Brian Garrett :

Most lenders do between 70-80% LTV for a cash out refinance.

So if the property appraised at $350k you would be able to get $245-280k out.

This is a 4plex so it's not valued on cap rate it's valued strictly from comps.

I'm assuming out of that $245 - $280k I'd be paying the remaining loan off, leaving me around $45k $80k in actual cash? 

Originally posted by @Matthew Dunn :
Originally posted by @Brian Garrett:

Most lenders do between 70-80% LTV for a cash out refinance.

So if the property appraised at $350k you would be able to get $245-280k out.

This is a 4plex so it's not valued on cap rate it's valued strictly from comps.

I'm assuming out of that $245 - $280k I'd be paying the remaining loan off, leaving me around $45k $80k in actual cash? 

Correct you would pay off your original loan and then what's leftover goes back to you.

Hi folks, a short update here. We are almost done with all the rehab! Whew what a lot of work!!
I've approached a few conventional lenders for a cash out refi and so far they are capped at a 70% LTV and have some quite inflated fees. Closing costs in the $6k range which I thought was excessive. I'd like around a 80% LTV at least.

What other cash out options should I consider? I thought about a HELOC but I'd prefer a fixed long term rate as we won't be refinancing this property again and it'll remain a buy and hold play.

Is it worth approaching some local community banks?

Also since appraisals are so expensive, is it possible to buy one appraisal from one source and use that across the board?

Thank you!
Matt

@Matthew Dunn some pointers here on what to look for:

  1. chances are that each lender will require a different appraisal.  Some small banks might not need an appraisal if you use their "portfolio" loan.
  2. Getting an 80% cash out loan on a multi-unit property would be very challenging.  I think you could possibly find one at 75% but I just don't know on the 80%.  AND if you do find one at the 75% "loan to value" that means it has to be a "portfolio" loan.  Which also means your rate is higher, maybe even variable, and it might only be a 15 or 20 year mortgage which would make your monthly payment higher...and sometimes all 3 of those.  If you are cash flowing well on this property maybe receiving one of these types of loans isn't a bad idea but you would have to call all the small banks in your area. Or maybe a mortgage broker - a broker has relationships with several banks.
  3. Closing Fees - I think it would be safe for me to say that all banks will require title insurance on the property.  I would also guess that out of those $6k in fees that probably $1000 or so was from the lender itself.  Which means that $5,000 was from other parties?  I'm guessing here but always ask for a "fee worksheet" with every quote you receive. Then ask the lender which fees are their's.  Underwriting/Processing/Points/Application fees are all lender fees but they might call them something different too.  On a home in this price range I would be quoting about $4500 in fees without an escrow account.  Maybe something else is needed in there?  Just ask for a fee worksheet so you can see the numbers.

Hope this helps.  Thanks!

Originally posted by @Matthew Dunn :

Hi folks, a short update here. We are almost done with all the rehab! Whew what a lot of work!!
I've approached a few conventional lenders for a cash out refi and so far they are capped at a 70% LTV and have some quite inflated fees. Closing costs in the $6k range which I thought was excessive. I'd like around a 80% LTV at least.

What other cash out options should I consider? I thought about a HELOC but I'd prefer a fixed long term rate as we won't be refinancing this property again and it'll remain a buy and hold play.

Is it worth approaching some local community banks?

Also since appraisals are so expensive, is it possible to buy one appraisal from one source and use that across the board?

Thank you!
Matt

 $6000 in closing costs on a non owner cash out refinance at 70-75% ltv should not be considered excessive if it's with an alternative lender, no income verification etc...

Not sure what kind of loan you're getting.

Stephanie

Originally posted by @Andrew Postell :

@Matthew Dunn some pointers here on what to look for:

  1. chances are that each lender will require a different appraisal.  Some small banks might not need an appraisal if you use their "portfolio" loan.
  2. Getting an 80% cash out loan on a multi-unit property would be very challenging.  I think you could possibly find one at 75% but I just don't know on the 80%.  AND if you do find one at the 75% "loan to value" that means it has to be a "portfolio" loan.  Which also means your rate is higher, maybe even variable, and it might only be a 15 or 20 year mortgage which would make your monthly payment higher...and sometimes all 3 of those.  If you are cash flowing well on this property maybe receiving one of these types of loans isn't a bad idea but you would have to call all the small banks in your area. Or maybe a mortgage broker - a broker has relationships with several banks.
  3. Closing Fees - I think it would be safe for me to say that all banks will require title insurance on the property.  I would also guess that out of those $6k in fees that probably $1000 or so was from the lender itself.  Which means that $5,000 was from other parties?  I'm guessing here but always ask for a "fee worksheet" with every quote you receive. Then ask the lender which fees are their's.  Underwriting/Processing/Points/Application fees are all lender fees but they might call them something different too.  On a home in this price range I would be quoting about $4500 in fees without an escrow account.  Maybe something else is needed in there?  Just ask for a fee worksheet so you can see the numbers.

Hope this helps.  Thanks!

Hi Andrew, this is great info. Thank you so much! I'll circle back around once I get some quotes on what ended up working for me. 

Dear all, just wanted to provide you all an update on this. Its been a very drawn out process this refinance. However we finally have a closing scheduled for next week! I ended up using a conventional 70% LTV 30 year lender. The first appraisal came in light at $375k, after my current loan and closing costs, I'd of only had around $43k in cash out, we contested it, as both myself and the appraisal management company agreed they didn't do the best job. They offered to pay for a second appraisal! We just got that back this week and it came in at $405k with around $66k in cash! That will more than pay for my rehab costs, yes it increases my payment by around $500/mo, but the HELOC I used to fund the rehab was running me $300/mo so for $200 extra per month I still will cashflow at $1,000/mo and have my HELOC @ $0 plus extra to fund the next deal.

Some takeaways I learned; I put together a comprehensive appraisal info packet for the appraiser to take away, showing all the capital improvements, financials, before/after pictures, comps of area etc. The first appraiser barely looked at it and took some bad pictures, made some scribbles and left. The second appraiser; night and day better. He invested himself, understood multifamily and what I was trying to do, was interested in my info packet and to top it off I shared with him a deal my wholesaler gave me as he was looking for something I was just sent that day. It pays to get that extra appraisal if you have to!

@Matthew Dunn glad that this worked out for you.  Hope that you are able to continue your successful run!

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