Cash out re-fi lender recommendation?

Question

Hey investors! I have a 2-family property that I purchased in 2017 that I'm looking to cash-out re-fi. It's value is about $210K, and I have 75K in equity. It has 3 beds down & 2 up, with room to expand. I want to add another bed up (which should push my value up into the 230K range) & then cash out re-fi to (help) finance another property. Any recommendations on a lender? I really want to work with a straight shooter when it comes to rates & points.

Daniel Hennessy · Answer

Good point on the closing costs.

There's plenty of room for a bedroom & it only requires a wall (there's already a big closet in that space), so it's pretty low hanging fruit.

Thanks for your advice!

Stephanie P. · Answer

@Daniel Hennessy

You're not factoring closing costs into the equation.  You won't net 26K, that's gross.  You'll net closer to 20K.

Adding a bedroom is a good idea if you can do it with cash because it will pay for itself over time.

Daniel Hennessy · Answer

@Stephanie P. Thanks for this reply — my head is in a similar space (is this worth it). The only factor that I should clarify is that I would use cash on hand to add that additional bedroom (and remove an undesirable tenant), which I hope would add something to that valuation — I've read the 11% range is not unreasonable (*please comment on this, anyone who's done this before). Assuming the bedroom pushes up the value a bit, the math then looks like a $230K value, minus 30%, leaves me at $161K, and taking out my additional equity would put about $26K in hand for my next purchase. The extra bedroom would easily net me another $3600 / year, so I'm thinking about doing it anyways & optimizing the rents. My risks are project overage costs, and getting an appraiser to see things in a good light following the minor renovation, but again, this project would pay for itself pretty quickly anyways, so it seems like a good idea at this point. If the appraisal didn't go my way, I would have a more valuable building pulling in more money every month, and (hopefully), a tenant who doesn't park on the lawn & smoke.

Stephanie P. · Answer

@daniel hennessy

Cash out max on a 2 unit for a Fannie Mae product is 70% ltv.  At a value of $210,000, your loan amount would be $147,000.  If your mortgage balance is $135,000, I'm not sure, after closing costs, that you're going to get much cash out to add a bedroom and help finance another property.  There are portfolio products that go to 75% cash out.  That may be a different option for you, but the rate and terms are not as promising and 5% is only an extra $10,500.

Sorry to be a wet blanket.

Stephanie

Daniel Hennessy · Answer

Hey thanks, Jerry! This is strictly an investment, so I'd be looking at 70%, which might still be worthwhile. Any thoughts on how accurate zilllow estimates are relative to where you see appraiser come in at?

Jerry Padilla · Answer

@Daniel Hennessy

I am glad to answer any financing questions that you have. Is this property in your personal name or an LLC? The LTV for conventional will be 70% for a duplex that is an investment property, or is this your primary home?