For over the past 11 months I've been tiring to figure out how to keep my first property, a house hack duplex, and somehow pull out cash/equity to BRRRR. However, it was damn near impossible, well at least here in Texas! I tried calling 10-12 different loan officers who first told me, "ohhhh no problem," only to be let down. It turns out as most of you may or may not know, it just isn't possible to do a cash out refi due to the Texas 50(a)(6) law, since it was my only property.
Well then one day I saw how a few, not many, were doing Condo Regimes on their duplexes..? And that got me thinking... really thinking! I first found out not only could I get more money for selling my property... from $500K-525K -> for selling as a duplex. To $620K -650K if I spit each side into a condo and sell for $300-325K a side! This got my wheels turning even more!
Here is the GOLDEN TICKET. One morning I was thinking... Well if I split the property into a Condo Regime, where each unit is it's own unit with it's own loan. Why couldn't I know do a cash out refi now on just the side, the side I live on?!?! Well according to a few lenders, Quicken being one of them. Why yes, yes I can... Brilliant idea! Now it took about 20min to explain what I was doing to the loan officer, because this almost is never done in the loan industry on two different levels.
I've basically got one loan for $325K with Pennymac, now after using a lawyer to split the property into a Condo Regime, I have to re-apply for two different loans one of each side for $162K. Where I will then do a cash out refi on side B, the unit I live in. Thus keeping my original property and giving me money to find my next.
Now my next move, if I couldn't do this cash out refi, was to sell both sides which I've owned for 2 1/2 years and look for an apartment complex around 15-30 units. I've been looking into literature on what to look for do's and dont's for newbies in this whole process. If anyone knows if Brandon Turner posted a write up on this, that would be greatly appreciated. @Brandon Turner
Wow! Way to be persistent! Amazing that you couldn't find anyone to cash you out.
Thanks Rob, if I had a second property, anything like a SF or multi, I could have done a cash out refi. But Texas has this crazy cash out refi constitution laws, inside that there is a Texas 50(a)(6) which is ridiculous. If you started the house hack here in Texas it made it really hard to keep your first property and BRRRR.
Loan Officers get paid per application, not per loan approved. Which is why they will usually be all to eager to tell you your circumstances “won’t be a problem.”
Updated about 1 year ago
See later post in this discussion for correction please!
Very creative thinking. I love it! Thanks for sharing. I was unaware of the problem you mentioned and will likely be hacking a duplex in Dallas in the next several months so this is definitely useful.
@Jason Pavloff , Theoretically it SHOULD work, and hopefully it will. However, Texas has a long history of homestead protection; lenders are usually risk adverse even when the law seems to be clear. Please let us know if it goes smoothly, or if you run into 'lender paralysis'
@Robert Pfenninger . Loan Officers get paid per application, not per loan approved.
Robert - I question your source for that comment!
Every Texas lender I've ever dealt with didn't get paid until the loan Closed.
@Jim Cummings Sir I stand corrected! I misunderstood my cousin. Had to ask her again. She worked as a loan officer for a while in Houston and got paid a commission on top of her base pay for closed loans and bonuses for well performing loans. What she said was that many loan officers she worked with pushed as many applications through as possible for shear volume with hopes that as many as possible would close. Will not say the bank she worked for but she didn’t stay long. Thank you for the correction!
@Robert Pfenninger . That's called the "Throw as much Mud on the wall as possible, and hope some of it sticks approach".
No reflection on your cousin - but most top performing Loan Officers work for Mortgage Brokers on commission only basis - not a bank salary.
I've talk to Quicken loans and they have advised me it will work. Pennymac, who holds the note, also gave me the thumbs up as my lawyer and their back end team all are in line for this to work.
To split the loans into 2 which means I have to refinance to make it happen. Pennymac can do it. However, Pennymac can't do cash out refi in Texas yet. I'm in the process with to lenders currently Quicken and a local Austin bank who's underwriters (I think) is backed by Wells Fargo.
It's been a while, but did you pull it off and get your loans? I have a TX duplex too and want to follow in your footsteps. :)
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