Cashing out on equity

3 Replies

Ok guys, I have a big question. I hope I have this in the correct topic area, if not feel free to move it to the proper place.

I searched the forum and didn't find anything specific to my question so here goes....

I have some money to invest, and want to get in the game of buying and holding/renting. I also have some other stuff going on and can't have my liquid assets tied up for very long as I will be using it for other business ventures.

I found a property where the asking price is below market value, but it does need some cosmetic work, nothing structural or important. Could be rented out right now, but I would like to do some updates to it. Asking price is about $10-15k below market value before these updates, depends on the deal I can get by purchasing with cash.

If I purchase this house with cash, how long would it be before I could basically take out a loan against the house? I think this is called a cash out finance? Also, will the bank give me 80% of the appraisal value? Meaning if the house is worth 100k, I purchase it for 50k. Could I then turn around and do a cash out for 80k, and basically make 30 grand in liquid?

Just wondering if I am understanding this correctly. If this is the case, then I just opened pandora's box, and am wishing I would have done this much sooner. 

BTW, I am talking about SFH's.

Thanks for any and all replies/help. If I need to give more details on something then please let me know.

Hey Derek. I'm in your same boat now trying to find the best fastest way to buy cash, get it out, and do it again.  What I've found so far is you can do cash out delayed financing within 6 months of the purchase. But you can't take out more then you paid.  Other then that you could do a typical refinance but I think you may have to wait for the house to season a little to be appraised for a higher value after you made a few repairs.  So it seems if you want cash out fast you can't get as much as you should be able to, or you have to wait 6 months to a year to try and get 80% ltv out.  What I'm trying to do now is buy houses with cash in my buisness name.  I am self employed and own an S corp. after I buy the house in my corporate name, I rehab it and then buy it from my buisness in my personal name.  I'm doing my first one like this now.  The only concern I have with this method is not being able to get regular mortgages in my name after I get too many. Right now I already have 3 mortgages. I have a lender who will do 10 but I'm not sure about the hole debt to income thing. I need to schedule some time to sit down with my lender.  I'm hoping the fact I have a few rentals, and I will technically own the house I'm trying to mortgage anyway, and could possible already have a tenant in place will help me to keep cranking out mortgages.  

As you can probably already imagine, you will be limited to pulling cash out of a property for most likely one full year, even if the value is higher than your purchase price.  As a private money lender, I value a property, in the first year of ownership, as purchase price, and most banks do the same.  The thinking is, if you can buy it for that price, anyone can buy it for that price.  If you rehab the home, the value in the first year is still the purchase price + rehab costs, at best.

One thing most people do not know is that private financing can actually speed up the process of getting a loan at a bank.  Banks love helping you refinance an existing mortgage (rate/term mortgage), but they don't like giving you cash (cash-out refinance).

I don't think the refinance will be a problem.  But it really depends on how much the house appraises for.    Before you buy this property I would seriously take a look at the comps in the area and be absolutely sure your price is right on. 

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