Cash-out/ Re-fi

10 Replies

Can someone please provide some education/ direction to resources on this topic. Seems like a simple concept but I am getting lost in the details...much obliged. 

What details are you lost in?  This is my main exit, and entrance strategy.

Joe Villeneuve
REcapStstem
A2REIC

So, if I have a motivated seller with 100% equity in the property and use seller financing, would the seller transfer the deed into my name and I (my tenant) makes payments (and the difference is "profit" to me)?...

And what recourse does the seller have should there be a default in payment? Foreclosure?

So where's the "cash out refi"?

Joe Villeneuve
REcapStstem
A2REIC

Your second post seems completely unrelated to the first.  So I suspect you have more questions in mind.

First topic:  

If you own a property and you get a new loan on it then you're doing a refinance loan.  Doesn't matter if there is an existing loan or not.  The distinction is that you already own it rather than a "purchase money mortgage" which is used to acquire a property.

If you do the refinance you might be just paying off an existing loan.  That's a "rate and term refi".  Or, if you actually get a check out of the refinance its a "cash out" refi.  You might do a cash out refi to get cash to use for some other purpose.

Second topic:

If a seller sells you a free and clear property and holds a loan to you for part or all of the purchase you've just done a straight owner carried deal.  This works exactly like buying a property with a mortgage.  You get a deed and are now the owner.  Someone lends you money and you give them a deed of trust or mortgage on the property.  That gives them a security interest.  That is, the ability to foreclose if you don't make the payments.  The difference between a seller carried mortgage and one from a bank is simply who's making the loan.

There are other forms of seller financing, though, where the title is not transferred.  A "land contract" aka "contract for deed" works like a car loan.  You get possession but not ownership (i.e., "the deed").  You don't get ownership until you finish the contract.

Another form of seller financing is a lease/option.  The lease gives you possession and the option gives you the right to buy.

Jon, thanks for the response...and thanks for understanding the question; I am talking about two different topics...just realized that. So, if I buy a property for cash and complete a rehab (which increases the appraised value), I can simply request a mortgage on the property from a lender? Would the "cash-out" be the difference in the purchase price and appraised value? 

Example:

Cash Purchase $50,000

Rehab $25,000

Total Investment $75,000

Appraised Value $100,000

I own this property free and clear (minus taxes and such). But there was never financing to begin with...so why is this a "re-fi." And why does this strategy make sense? It would be necessary to put a tenant in the property to cover the mortgage payment...? etc., etc.

I don't know the answers to your questions but I am working on a cash-out refi on a rental right now. I was only able to find cash out up to 75% of appraised value on investment property. In your scenario, you would get your cash out to use in another investment thus making your investment in property number one zero dollars. If rents cover mortgage and expenses then you have a good deal in my book. Cash is king, they say.
I know there are some holding rules as far as how long you have to hold property before a cash out. Hopefully someone more experienced will chime in. I would suggest calling some lenders. One told me that they only did full cash outs if I had four or fewer mortgages. Sometimes difficult to know which are laws and which are bank rules.
Good luck.

@Will Pritchett  As far as how long you need to hold the property before refinancing, that depends on the lender.  Most banks, or other traditional lenders, will require between 6-12 months of seasoning before a refi.

On the other hand, non-traditional or private sources, like mine, may not require any seasoning at all. Although I do have a local bank that will do 75% ARV with no seasoning.

Joe Villeneuve
REcapSystem
A2REIC

@Joe Villeneuve So, a couple of questions/observations:

In order to do a cash-out refi, I would need considerable equity in a property for it to make sense?

And there are limits on LTV based on the appraised value of the property?

It feels like the cash-out re-fi is like a HELOC...so why would I refi over a HELOC?

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