bethel, CT · Member since 2015 · 335 posts · 57 votes
Hello again bigger pockets people. I just wanted to clarify the rules when doing a cash out refinace.
Buy all cash- no 6 month seasoning required?
Use hard money- there is a 6 month seasoning period?
Purchase with all cash and you can use Delayed Financing to get your money out immediately. A hard money lender will record a loan against your property and the bank refinancing will see this. This will initiate whatever requirements they have (e.g., nothing, 6 months or 12 months seasoning etc.). There are several threads explaining the implications...just search "refinance" or "seasoning".
This is a strategy I am going to implement once the opportunity presents itself. I have spoken to at least 3 different people who are doing this. Here it is:
Create an LLC and have the LLC lend you a mortgage on the property you are receiving. The reason why this works is because instead of you needing cash or receiving a cash out loan, we are now refinancing a loan – your loan. There no reason to wait any time or have any "whichever is lower" rule come into play. We are just refinancing a loan. Here's how it works:
You create an LLC. You buy a home. Your LLC gives you a loan for the home. You file the deed for that loan at the county courthouse. You use the money from the LLC to buy and fix up the property. Once the property is completed, your conventional lender comes to refinance the loan. Your conventional lender runs title and sees there is a loan. Your conventional lender refinances you into a new loan, and cuts a check to your LLC in the amount of 75% of the value. Please don't confuse this 75% with a "cash out" amount. The non-cash out LTV on a refinance is also 75%. We are refinancing a mortgage. Your LLC's mortgage. Essentially your LLC has become the bank/hard money lender/etc. However you want to think about it. You get to set the interest rate (it can be 0%) and you get your investment amount back sooner. Some things to think of:
To file a deed at the county courthouse is $100-$150 in cost (depending on which county) And you want that note to be pretty close to 70% of the ARV for the property if you don't want to bring any money to closing. 70% will allow you to roll in your closing costs. If you want it to be at 75% just keep in mind you would need to bring your closing costs out of your pocket to complete the refinance.
Find a title company that can file a deed for you from your LLC to you personally- and your right no money comes out. You are refinancing your existing mortgage- the one your LLC gave you.
@Daniel Green probably best to consult a CPA or maybe the guy who introduced me to this can help- @Andrew Postell