Purchasing a House all Cash Then Refinancing

[Neil P.]

I would like some expertise on this current issue I'm facing.

I have this house 155,000 purchase price.  I want to do all cash and refinance.

I am going to get an appraisal done Monday, the seller is very confident the appraisal will come out to 200k or above.

Lets say it comes out to 200K, as soon as i close the house i want to refinance the home.

The bank that im using is saying they will give me back 75% of the appraised value.

So say i put 155,000K cash in.

Appraised value 200,000.

Bank gives back 75% of money= 150,000 back.

So in essence i get this house for 5,000 down cash.  

How can i lose here?  What am i missing?  I feel like this is a deal to good to be true.

I have 1 investment home, this will be my second, so im pretty new to this.

Also the appraisal for the house will be the same appraiser the bank will be using when i refinance.

This property is in NJ, i will be holding this property its a 2 family home.

[Joe Villeneuve]

@Neil P. What you just described is our main entrance and exit strategy.  It works only if you get enough cash flow after the refinance though...how much is enough is up to you.  One of the huge benefits of doing this is the ability to reinvest the cash again after you refinance it out.

As @Larry Turowski mentioned, be careful of the appraisal.  They don't always come out the way you need them too, so you need to be really good with your analysis before hand.

Having said that though, in your scenario, getting a lower appraisal doesn't kill the deal (I guess that depends on how low though).  Here's why:

I'm assuming there are no rehab costs in addition to the 155 since you didn't mention them.  With it also assumed then, that the 155 covers all costs (buy/rehab.closing/etc...), then 75% of a 200k appr. would get you 150k...and you'd only have 5k in the deal.  Now you made no mention of what the cash flow would be AFTER you figured in the REFI monthly payments.  If you were making 250/month in CF, then it would take you only 20 months to get the rest of your cash back and be 100% whole again.

In the mean time, you've reinvested 150k of your original cash into the next deal.  If you keep repeating this over and over, you can collect a number of cash flow properties quickly, without ever really spending any cash...since you get all of your cash back with the last refi.

As a side note, if you can get deals, or your refi can substantially increase your LTV at REFI, you may be able to cash out on some of these refis.

Joe Villeneuve
REcapSystem
A2REIC