Contractor · Boston, MA · Member since 2020 · 5 posts · 2 votes
Hi All, my wife and I currently live on a 2 family house. We recently (2months ago) bought a 3 family investment property that is cashflowing. Now we want to cash-out- refinance the property we live in. We should have about $180k-$200k.
Can anyone guide me on how to apply that money on a 3rd investment property? Or does anyone recommend an online course that will cover that subject?
Your banker can help you with that. Use a small regional or local bank. Tell them you want to use some of the equity in the property you live in as a down payment on an investment property. I would ask them to establish a line of credit at that point, for whatever is left. That way you aren't paying interest on money that isn't doing any work.
@Sthenio Maciel so part of what you are asking will depend on the strategy you are using. Meaning, if you want to just buy a "turn-key" property next (meaning a property that needs no work) then you would just need your downpayment and closing costs for your next home. If you were looking to BRRRR your next property then you would need to know the terms of your "BUY" step and your "REFINANCE" step.
And as always, I would firmly recommend on getting plugged into some local real estate investor groups in your area. Some post here on the Bigger Pockets Marketplace. Many post on meetup.com. Even facebook will have some. Networking is always a great practice and you never know who you might meet there and what good information they have to share. These groups do all sorts of classes, training, etc. and usually free of charge.
@Sthenio Maciel There are a lot of strategies you can use for that amount of money. Getting educated in multi family is also a good start. But if you want to remain passive in the investing, then I would recommend buying 1-2 turnkey properties in the mid west that cash flow from Day 1 and build your portfolio. Good luck! and keep us posted on what you end up deciding
@Andrew Postell thank you for your response. I'm very hands on and have done a few remodeling projects and now going for my plumbing license. I have no problem rehabbing, if I find a local deal that I can work on as I start to grow my portfolio. The BRRRR strategy is definitely at the top of my list.
@Aj Parikh absolutely Aj, I been leaning towards Myrtle Beach SC market. I have relatives that lives and is in the construction industry, it would probably be a plus to help me find reliable maintenance companies as I grow.
@Sthenio Maciel don't do what @Kyle Lane said. Bankers want to decrease risk. To tell a banker that you want to get a loan on your primary home in order to invest in real estate seems risky to most bankers. Remember, most bankers have an employee mindset which seeks security and wants to avoid risk so they just follow their banks policies. Most banks have policies that frown upon taking money out of one's house to invest. That is why when you go to a bank to get a HELOC (Home Equity Line of Credit) and the banker asks what you want to use the money for, you tell the banker that the money is going to be used for "home repairs and improvements" which is true because you are going to be doing home repairs and improvements - it's just improvements on an investment property. You will more likely be able to get a loan presenting it this way than telling them that you want to leverage your home as much as possible in order to invest.
Depending on the rate that you have in first position, you may want to get a HELOC rather than refinance your home. If your rate is at 3% and you could refinance it at 6%, then I wouldn't do that. I would encourage you to keep the first loan and just get a HELOC for a second on your home. If the interest is high on the first and a refinance will lower the rate or keep it about the same, then I would do a refinance. However, I wouldn't do a cash out refinance. I would do a rate and term refinance. What that means is that I could get a better rate doing a rate and term refinance over doing a cash out refinance. So how do you do it you ask. Well, you work with a bank to determine which bank will give you a rate and term refinance. Tell the banker you are not absolutely sure how much you owe on the house but that you would like to know the the maximum amount you could as a rate and term refinance. Then, when you know home much of a loan you could get and qualify for on your home, find a family member or a friend to lend you the 180k or 200k for a short time frame and put a second lien on the house in order to leverage it up to their refinance amount. This will get you a better rate than doing a cash out refi and you don't need to convince the bank to actually give you the cash out and explain what you are going to do with it. I have done this tons of times and it is better and easier than doing the cash out refi with most banks.
@Shiloh Lundahl Never know until you ask. Doing what Kyle Lane did is exactly what I did lol. With no problems at all. Will all banks do it or even most? Probably not. But it's a great way to fund a deal if you can pull it off.
I would push back on your idea of telling a bank you are borrowing money for home improvements under the unspoken assumption that its for your personal house and then using it to fund a deal. That is extremely sketchy. What if they ask if it's for your personal residence? Are we to lie then? What if they find out it wasn't and the loan documents say they can call the note if it's violated?
be honest with your banker and if they won't work with you go find another one. There are plenty of lenders out there that will get you some money if the deal is good.
@Kyle Lane Wow, it's sure been a long time since this post. I looked it over and will have to confirm that what I stated is still valid. For every one bank or credit union that are supportive of taking money out of your home to buy an investment property, there are 10 other ones that are not supportive of it.
Your are conflating the words honesty and transparency. If I know what will deter the bank from giving me a loan and the bank doesn't ask me a question about it, then I'm not going to open my big fat mouth to stick my foot in it. I am not being transparent, but I am also not being dishonest.
Here is a perfect example. When I am in the middle of flipping a house and I have a hard money loan on it, do I disclose this loan on a private home loan application? No! The loan is a temporary loan, yet the bank will count the payments against my DTI as if it were a permanent loan. I understand that they are looking at my capacity to repay. But my capacity to pay my personal mortgage is separate from my flipping business. And if I am flipping 8 houses at a time with monthly hard money payments of 14,000 a month, then it would prohibit me from getting a primary home loan unless I earned $50,000-$60,000 a month. So no I don't put on my applications information that isn't relevant to the loan I am getting. Otherwise, I would need to shut down my business for several months in order to get a loan.
You can call it sketchy, but when you have worked with dozens of banks and have gotten hundreds of loans like I have, you start to understand what information banks are looking for, why they are looking for it, and what irrelevant information to avoide disclosing that will likely get the loan disqualified when it is irrelevant to the loan.
I am not saying to lie. I am saying don't be stupid.