Contractor · Richland, WA · Member since 2019 · 19 posts · 9 votes
Hello BP,
We are excited to finally join the Bigger Pockets group of motivated Entrepreneurs!
My wife and I are looking to cash out refinance our rental property in Richland, WA to further expand our rental portfolio. I am a GC in the Tri-Cities WA area and we currently invest in New build residential spec homes for sale and have been using private money. That being said, we would like to add rentals to our portfolio and take advantage of the low interest rates to unlock the equity. The home has been renting for 4 months now and has about $230,000 in equity. This is our first rental property so I can see why banks have told us to wait 2 years before we can cash out on an investment property being that we are new to this part.
So our question is, Are there other options to use this home to purchase future rental properties? If so, what are they? Any insight is helpful and much appreciated.
Lender · Logan, NM · Member since 2017 · 77 posts · 34 votes
5y
@Paul Ivanov have you talked to local banks that would keep it in portfolio? Their rate would be higher but they may let you refi which would give you access to the equity. Then you could refi into secondary market after the 2 year mark.
Lender · Logan, NM · Member since 2017 · 77 posts · 34 votes
5y
@Paul Ivanov have you talked to local banks that would keep it in portfolio? Their rate would be higher but they may let you refi which would give you access to the equity. Then you could refi into secondary market after the 2 year mark.
Contractor · Richland, WA · Member since 2019 · 19 posts · 9 votes
5y
Thank you Lee Judd, yes I have but I am also wondering if they are seeing a high debt to income ratio. I will continue looking at other local banks and other lending options.
Investor · Kennewick, WA · Member since 2020 · 9 posts · 1 vote
5y
@Paul Ivanov, check with Jamin Clark at Community First Bank. He's the Sr. VP and Mortgage Department Manager. He's doing a couple of cash-out refis for me right now on investment properties. Two thumbs up from me so far! Good luck! I'll PM you his contact info.
Investor · Cleveland, OH · Member since 2015 · 6k+ posts · 2k+ votes
5y
@Paul Ivanov, does the fact that this "new" Rental already has $230k equity mean that the amount of your own dollars in the deal is not much shy of that amount?
Are you also saying that the rent you receive from it isn't helping your DTI ratio?
Ultimately, you have to play by Lenders' Rules, and often that means: having patience.
Yeah yeah, I know, you hate that word! Good luck...
Contractor · Richland, WA · Member since 2019 · 19 posts · 9 votes
5y
@Marcus Burleson I will give him a call. Thank you very much! I appreciate it.
@Brent Coombs we owe $220k on the house and current market value is $450k.
The banks we have reached out to have said that our DTI ratio is high and they won't count the rental income until we've seasoned for 2 years as property owners. So for now the rental is showing just debt. I was hoping there is another way around or a lender that does not need to see the 2 years.
Patience has been difficult but necessary part of my learning experience so far.
Investor · Cleveland, OH · Member since 2015 · 6k+ posts · 2k+ votes
5y
@Paul Ivanov, I'm curious as to why you put as much as 50% down to begin with? If the same issue applied then as applies now, what made you think you might be able to skirt around their issue so soon thereafter?
I'm also curious: how would its cashflow look like if you did owe another $110k on it?...
Investor · Kennewick, WA · Member since 2020 · 9 posts · 1 vote
5y
@Paul Ivanov, Give me a call when you have a minute, and I can walk you through how I got started. I was a W2 construction worker in '11 and '12 when I started to buy and hold, and after the recession, Fannie May and Freddie Mac changed their lending procedures for construction workers; they basically treated us as business owners and used our AGI rather than our gross, which created a hurdle for me. My cell number is in my signature.
Contractor · Richland, WA · Member since 2019 · 19 posts · 9 votes
5y
@Brent Coombs we built the home in 2018 with $73k down for land as down payment and 233k at the time for the loan. With 2 years of down paying the loan, we are down to $220k for loan amount. We built the home with some sweet equity which helped keep costs down. The home value is now showing $450k based off similar comps in the neighborhood.
$73,000 Land (Cash invested)
$220,000 Loan
$450,000 Value of home
=$230,000 Total Equity
Cashflow would be roughly $250/ month if we got 80% of equity which would drop it significantly lower but with the cash out refi on hand, we would be able to pickup the next deal.
Investor · Cleveland, OH · Member since 2015 · 6k+ posts · 2k+ votes
5y
@Paul Ivanov, I'm not quite sure what you mean by "Cashflow would be roughly $250/ month if we got 80% of equity which would drop it significantly lower". It would be clearer if you mentioned what the cashflow is now.
Unless you're getting a lot more than $250/m cashflow now, then it seems to me that $250/m is a meagre return for the number of dollars you have in the deal.
(ie. Circa 4%/y return on your $73k investment).
ie. Unless you're expecting to make most of your money out of it from future capital gain in value, then perhaps you'd be better off by selling it now?
[Yes, I know, you're probably worried about the capital gains tax if you do sell now?] Still...
Paul as far as the 2 year wait time it does not make sense at all. I have a porfolio of 240+ single family and 2 to 4 flat rental so I have done this a few times. Even if this is first rental property you should have to wait a max of 6 months from the date of purchase both for a cash out refi. Your DTI may be off as you suggested I don't know your number but you can get a commercial loan with a national lender. Reach out on DM will be happy to send the info.
As long as the cash flow numbers make sense you should be able to get 70 to 75% of Appraised value after 6 months hold time. This is even if you DTI is high. Local commercial banks will not do these if you DTI is off. These portfolio lenders have a little process on lending they are looking at 1.25 DCR (Debt Coverage Ratio). Always keep you DCR's 1.33 or above and pay a little in taxes in terms of income. A lot of real estate investors try to take as much depreciation as possible and they think that is being smart but it hurts them a lot in the long run. To build a large single family or a 2-4 flat portfolio you have to show income at the end of the year.
The rules are different in a large multi unit. there the bank will add back the depreciation in small single families and below 4 units they will not. All that is pretty technical.
DM me and will be happy to give you a couple of people that will do the Cash out refi.
Contractor · Richland, WA · Member since 2019 · 19 posts · 9 votes
5y
@Brent Coombs we currently do spec homes as our main investment strategy and we pay capital gains every year on the homes we sell which is what we expect to pay.
Rental game has been new to us so we are looking to maximize our equity locked in the deal to continue buying more rental properties used/ new build. High cashflow is not our main goal, more so the appreciation of equity is what were after although I agree high cashflow is great! Right now we are looking to build the rental portfolio by acquiring more rental units.
@Andrew Holmes I have recently found that its 6 months and not 2 years. Some of the information I have received from different lenders and bankers have mentioned what you have said. Thank you for reaching out. I will DM you.
@Brent Coombs we currently do spec homes as our main investment strategy and we pay capital gains every year on the homes we sell which is what we expect to pay.
Rental game has been new to us so we are looking to maximize our equity locked in the deal to continue buying more rental properties used/ new build. High cashflow is not our main goal, more so the appreciation of equity is what were after although I agree high cashflow is great! Right now we are looking to build the rental portfolio by acquiring more rental units.
@Andrew Holmes I have recently found that its 6 months and not 2 years. Some of the information I have received from different lenders and bankers have mentioned what you have said. Thank you for reaching out. I will DM you.
Paul, I think you meant to say "we are looking to minimize our equity locked in the deal".
ie. You want the least amount of your own dollars left in each deal, right?
(Which is why you started this thread in the first place).
PS. Congrats on the large "sweet (sic) equity" you managed with all that sweat. Cheers...