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

    @Will Proulx the whole reason of my post on "how to get cash out of a 1-4 unit property" is to totally avoid the "whichever is lower" rule.  So while the "whichever lower" rule is annoying and confusing all you have to do is follow section 3 and that rule won't even come into play.  Also, keep in mind this is for "Fannie/Freddie" loans.  So if you are using a different loan type...that loan type may not have that rule at all.

    Admittedly, that strategy is designed to benefit people at a higher price point.  5% at $150,000 is a lot more money than 5% of $32,000.  So, feel free to just use the 75% rule on the above scenario if you are comfortable with the numbers.

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  • Bart H.
    Dallas, TX · Member since 2016 · 1k+ posts · 745 votes
    8y

    No message please delete

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  • Brett G.
    CO · Member since 2018 · 69 posts · 52 votes
    8y
    Originally posted by @Will Proulx:

    @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.

    This is what I am discovering as I am starting to put the pieces of my plan together.  The gurus tell you that all you have to do is refinance and pull out all (or more) of your cash invested and do it all over again.  However, there is much more to this.  I agree, the only way to get the most money back to use again is to find those screaming deals and force some equity.  And at cash-out time, hope the appraisal comes in favorably.  I am thinking that the formula for flipping is relevant in this situation, too. 

    Also, you have to make sure your current and future financing scenarios work for your necessary cash flow and returns on the property.

    This can only benefit us, as it will force us to seek out and make those great deals.

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

    Also, what I've been finding is that there are houses that can make good flips, but are not good candidates for BRRR. A reason for this I've come across is that, while the purchase price, renovations, and ARV are appropriate for flipping, the market rents are too low to cash flow well after refinancing at the ARV. Just one more detail that can be important in the BRRR strategy.

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