Delayed Financing Question on All-Cash Purchase

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Delayed Financing Question on All-Cash Purchase

Will Proulx
West End, NC · Member since 2018 · 18 posts · 4 votes

Hi guys, 

I'm reading a lot of different stuff on delayed financing and am wondering what the deal is with a delayed financing option for an all-cash, (no lender used, just personal cash) purchase of a property. 

-I've read something about how you can only pull out exactly what you put in? (Random theoretical ease-of-use numbers here) Does this mean that If I bought a property for 50k all cash and it's all mine, I can't pull out say 65k if it is appraised for 100k (using 65% LTV obviously) once renovations are done?

-Basically I'm just wondering first if I can even do a "cash-out REFINANCE" on a property that is not going to be financed at all, simply purchased outright with cash. And if I can, could I potentially get my money back that I used to buy the property AND THEN SOME assuming I can generate enough forced appreciation with renovations? Or is this simply a strategy used to pull back the same amount initially put into the property? 

Thanks in advance for your help,

-Will

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Andrew PostellPro Member
Lender · Fort Worth, TX · Member since 2016 · 8k+ posts · 6k+ votes
8y

@Will Proulx you can see the article I wrote on the subject that you can read HERE.  Let me know if you have any questions on it.

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  • Harjeet BhattiPro Member
    Lender · Glenview IL- CDLP NMLS#230554 · Member since 2015 · 2k+ posts · 747 votes
    8y

    @Will Proulx Appraisal value $100000*70%= $70000------- You spend $50000 lets say closing cost+$3500= $53500

    You will be able to cash out $53500 max under delayed financing exception. 

    1Reply
  • Brian Garrett
    Real Estate Investor · Palm Beach County, FL · Member since 2017 · 3k+ posts · 2k+ votes
    8y

    If you want the cash out refinance based on the ARV or new appraisal you have to wait 6 months.

    There are several strategies to bypass this so you wouldn't have to wait the seasoning period though.

    Dig around the forums here and you'll see lots of info and suggestions.  I don't have the post links handy.

    1Reply
  • Will Proulx
    OP
    West End, NC · Member since 2018 · 18 posts · 4 votes
    8y

    @Harjeet Bhatti thanks, that's the crux of my question though, does that mean that the property has to appraise for that 100k BEFORE I rehab it or after? 

    0Reply
  • Will Proulx
    OP
    West End, NC · Member since 2018 · 18 posts · 4 votes
    8y

    @Brian Garrett So I can pull ONLY my cash invested out if I elect to do the delayed financing exemption but can possibly pull my cash invested + some if I wait the seasoning period and then do a cash-out refinance? 

    1Reply
  • Brian Garrett
    Real Estate Investor · Palm Beach County, FL · Member since 2017 · 3k+ posts · 2k+ votes
    8y
    Originally posted by @Will Proulx:

    @Brian Garrett So I can pull ONLY my cash invested out if I elect to do the delayed financing exemption but can possibly pull my cash invested + some if I wait the seasoning period and then do a cash-out refinance? 

    Yes this is correct but like I said there are a couple ways where you can pull out your initial cash plus your rehab costs without needing to wait the 6 month seasoning. If you wait 6 months then you can get 70-75% of the ARV out regardless.

    1Reply
  • Harjeet BhattiPro Member
    Lender · Glenview IL- CDLP NMLS#230554 · Member since 2015 · 2k+ posts · 747 votes
    8y

    @Will Proulx  If the property is in livable condition lender will be able to cash out otherwise you have to rehab it. The appriser  will count rehab cost so can compare with same comps in your area. Its your decision how you want to do it. 

    1Reply
  • Will Proulx
    OP
    West End, NC · Member since 2018 · 18 posts · 4 votes
    8y

    @Brian Garrett I am not trying to over-simplify things here but I will for the sake of brevity..

    So I could potentially accumulate multiple properties over the next couple of years which are all free and clear due to my getting my initial money invested back from these strategies? And if I had say 4 properties free and clear after a couple of years I would simply have those 4 cashout refinance/ delayed financing interest rates to pay in the future?? Sorry I've absolutely combed forums looking for the catch in this method and I can't seem to find these specific answers..BTW, thanks SO much you both are insanely helpful. 

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  • Brian Garrett
    Real Estate Investor · Palm Beach County, FL · Member since 2017 · 3k+ posts · 2k+ votes
    8y
    Originally posted by @Will Proulx:

    @Brian Garrett I am not trying to over-simplify things here but I will for the sake of brevity..

    So I could potentially accumulate multiple properties over the next couple of years which are all free and clear due to my getting my initial money invested back from these strategies? And if I had say 4 properties free and clear after a couple of years I would simply have those 4 cashout refinance/ delayed financing interest rates to pay in the future?? Sorry I've absolutely combed forums looking for the catch in this method and I can't seem to find these specific answers..BTW, thanks SO much you both are insanely helpful. 

    Yes that's correct assuming you bought them at the right price where you were able to get all your cash back out.

    As far as the future goes you would have a mortgage on each house after you do the cash out refinance.

    It's crucial to make sure you know what that payment will be in advance to factor it in to your deal analysis.

    0Reply
  • Account Closed
    Contractor · Los Angeles, CA · Member since 2015 · 887 posts · 323 votes
    8y

    @Will Proulx send me a pm with your email. I have a document written by another bigger pockets member that helps explain this. If anyone else wants it pm me as well. Pay attention to #3. 

    0Reply
  • Andrew PostellPro Member
    Lender · Fort Worth, TX · Member since 2016 · 8k+ posts · 6k+ votes
    8y

    @Will Proulx you can see the article I wrote on the subject that you can read HERE.  Let me know if you have any questions on it.

    2Reply
  • Will Proulx
    OP
    West End, NC · Member since 2018 · 18 posts · 4 votes
    8y

    @Andrew Postell very interesting and informative thank you so much. Any advice on who to speak with or what to search for in terms of the actual logistics of taking a loan out of the LLC? And this method would negate the delayed financing option would it not?

    1Reply
  • Jeff Kelly
    New to Real Estate · Highland Park, IL · Member since 2016 · 65 posts · 20 votes
    8y
    Following, @Will Proulx, and I asked a similar question here recently. I got some very helpful answers from some of the same people on this thread. Thanks, guys! But yes, I'd love to see the responses to your last question, in which you're asking to be walked through the proper procedure to make the loan from your LLC happen and use that #3 process. I'm hunting the same exact info. In my post/discussion asking a similar question, some people did attempt to describe the process, and weee helpful. I'm just looking to more thoroughly understand the mechanics with this now. So, You might want to search for my recent posts about Delayed Financing and Refinancing. I accidentally posted it twice but I got helpful responses on each post! So read them both if you can. But please keep hunting down the details and please let me know if/when you find them. I'll gladly do the same.
    0Reply
  • Account Closed
    Contractor · Los Angeles, CA · Member since 2015 · 887 posts · 323 votes
    8y

    @Will Proulx 

    the post from @Andrew Postell is exactly to what I was referring to.

    0Reply
  • Account Closed
    Contractor · Los Angeles, CA · Member since 2015 · 887 posts · 323 votes
    8y

    @Will Proulx in talking to Andrew yes it would negate the delayed financing option because now an existing mortgage from you LLC is being refinanced. You no longer have to preoccupied with getting back the lesser of the two with delayed financing. The new bank/mortgage company who does the refinance sees that they have to pay off the existing loan from your LLC.

    0Reply
  • Account Closed
    Contractor · Los Angeles, CA · Member since 2015 · 887 posts · 323 votes
    8y

    @Jeff Kelly in talking to Andrew earlier today all the new bank has to see is that there is an existing lien. So all you need is to file the deed in the county where the property is located. They don't care where the money came from as long as there is a paper trail. 

    0Reply
  • Andrew PostellPro Member
    Lender · Fort Worth, TX · Member since 2016 · 8k+ posts · 6k+ votes
    8y

    @Will Proulx as far as the logistics go a title company can help you file the lien on the property.  They might require a note...but maybe not...if they do, then you can just google "mortgage note examples" and use any that you feel comfortable with.  Hope that helps.

    0Reply
  • Troy Williams
    Rental Property Investor · Florida & Shanghai · Member since 2017 · 192 posts · 68 votes
    8y

    Good read. So if I'm understanding the delayed financing idea correctly, if I wanted to pay all cash for a property, I would still have to pay for it with my own funds first, with the delayed financing funds coming only shortly thereafter. In this case, what if I got my cash from personal loan or other source (besides a mortgage loan) for the initial cash purchase... still be able to use the delayed financing or need to go another route?

    0Reply
  • Jeff Kelly
    New to Real Estate · Highland Park, IL · Member since 2016 · 65 posts · 20 votes
    8y
    @Jorge Ruiz @Andrew Postell thanks for the extra info. I'm now wondering if this plan and the mortgage note given to you by your LLC all needs to be in place before the actual purchase date. Would it work if someone purchased a house with all cash, and then had his own LLC give him a mortgage on that house a few days later, and then take that mortgage note to a bank and have them refinance that mortgage. Or...does your LLC's note need to be in place on the date of the initial acquisition? This is a really interesting way to refinance though, either way.
    0Reply
  • Jeff Kelly
    New to Real Estate · Highland Park, IL · Member since 2016 · 65 posts · 20 votes
    8y
    @Andrew Postell @Jorge Ruiz, 1) what would prevent someone from acquiring, say, 10 houses in a single year by recycling the same initial all-cash-purchase money 10 times with this strategy of having your own LLC provide your mortgage and getting that existing mortgage refinanced by a bank within days or weeks of purchasing? 2) does the all-cash-purchase money have to be paid by the LLC's account when buying the house? Or can it come from a personal account? 3) does the cash used to purchase a property need to have been sitting in the LLC's bank account for 2 months prior to purchase, so the bank can trace it? Or could you move the money from your personal account to your LLC's account on Monday and have the LLC buy the property on Tuesday the following day? 4) it was said in the answers given in my own post that realistically, it's probably a good idea to wait one month between purchase and refinancing, just to make sure everything (especially the lien) gets recorded properly before you refinance. If that's correct, and this is all legit, one could buy 12 homes in a year by recycling the same initial cash purchase amount. Am I missing something?
    1Reply
  • Will Proulx
    OP
    West End, NC · Member since 2018 · 18 posts · 4 votes
    8y

    @Andrew Postell @Account Closed @Jeff Kelly

    I'm having a difficult time finding ANY other good info on this particular "finance-to-self through your LLC" strategy. I am simply finding a bunch of heated debates on the efficacy of using an LLC for REI period, can't find anything about the details we have been discussing.

    I am, however, coming across some discussions mentioning that a prospective lender or bank you'd be working with on the refinance may be able to see that the title on said property was slyly financed to yourself through your LLC and this could/would be likely to trigger a "Due on Sale Clause" which would screw everything up totally?? Thanks so much for all the help everyone, I'd like to keep this discussion going! 

    0Reply
  • Eric James
    Investor · Malakoff, TX · Member since 2017 · 2k+ posts · 2k+ votes
    8y

    You can also find a portfolio lender (i.e. a small local bank) who will loan on the appraised value without any seasoning period and not have to worry about a delayed financing exemption.

    1Reply
  • Will Proulx
    OP
    West End, NC · Member since 2018 · 18 posts · 4 votes
    8y

    @Jeff Kelly @Andrew Postell @Account Closed

    Sorry to blow up the thread but one more thought! The following is an excerpt from Andrew's original post...

    WHICHEVER IS THE LOWER AMOUNT (super important)

    I understand the caution in all this, but entertain a scenario..I'm having a very difficult time passing up cash-only deals based solely off the knowledge that the ARV really isn't going to go anywhere due to the home being livable/only needing cosmetic upgrades/being sandwiched in between 2 or 3 other units of a multiplex...I say again I'm having a hard time forgetting these deals because they would cash-flow nicely and are affordable. BUT....bearing in mind Andrew's original caution about the "lesser of the two number's" you could still get all your money back out of the deal fairly soon no?? 

    (1) 25k 2BR1BA unit (sandwiched in a 5-plex), spoke with some people in the are in the game, they confirmed my inclination that the ARV would not move much...but say I have 28.5k in the deal after cosmetics and closings...The home's ARV ends up at only 32k...that leaves 24k at 75%...would it be possible to do this with the cash strategy, ending up with basically only a few thousand of your money left in the deal which will be paid off in no time by actual rental profit after all expenses??? Unless I'm totally missing something that seems like a way to get around the hassle and headache of relying totally on the accuracy of your ARV (not to mention the bank/appraisers willingness to match that when the time does come to refi) concerning the BRRRR method.

    0Reply
  • Will Proulx
    OP
    West End, NC · Member since 2018 · 18 posts · 4 votes
    8y

    @Eric James Thanks so much for your input Eric! Please expound on this as it sounds like you have experience with it and my partner and I were JUST discussing portfolio loans today. If possible, specifically explain to me if there are contingencies on portfolio loans you've used in the past? Do you have to refinance X number of properties at once? etc..

    Also, I know it's sort of long, but please read through the reply I just made a couple of minutes ago..you sound like you may have some answers/corrections to make for me. 

    THANKS AGAIN YOU ALL HAVE BEEN GREAT!

    0Reply
  • Eric James
    Investor · Malakoff, TX · Member since 2017 · 2k+ posts · 2k+ votes
    8y

    I expect every small bank has their own particular policies, but I doubt many require you to refinance multiple properties. The term portfolio lender doesn't mean you have a portfolio of many properties. Just talk to some local lenders about what their refinancing policies are.

    As I see it, if you want to be able to pull all ypur money out when refinancing you either have to buy below appraisal value, do renovations that increase the appraisal value more than the reno cost, or both.

    You can buy properties in good condition that cash flow well, but you probably won't be able to pull all your money back out unless you are buying them well below market price. 

    0Reply
  • Will Proulx
    OP
    West End, NC · Member since 2018 · 18 posts · 4 votes
    8y

    @Eric James Awesome. Very helpful. That's where I'm at, sort of frustrated because I've come to a point in my "self-education" in REI that I realize that the BRRRR method (if you want to get all or even all+some back out) ONLY works with downright exceptional deals....I am not discouraged by this, if anything, I'm more fired up to sniff out the deals, but man...it seems like it's gotta be WAY below market value AND be situated in an area in which upgrades will drastically increase the ARV for me to be able to make the refi work for me and continue reinvesting that money in more properties.

    Thanks for your help Eric, greatly appreciated. 

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