Best option to refinance a flip for a rental and get my money out of it

[Michael Furey]

I bought a house to flip and just listed it to sell. I’ve researched the rental market here and it’s pretty good. I’m now contemplating just keeping it and renting it. Only problem is, I’d like to get as much of my money out of it as possible. Are there any options for this where I can get 100% (or even close to it) in a refinance?  Anything creative?

[Matthew Crivelli]

@Michael Furey

You will 100% not get 100% out of the house on a cash out refi. In most cases you're looking 75% max. You may be able to find 80% LTV but the rate will be too high for you to stomach. If you need the money, sell the house.

A rental is a long term play. Think of it as cash on cash return, you leave money in the house and in return you get monthly cashflow. 

[Michael Furey]

What if I can refinance for 75% and then do a HELOC for the rest?

[Matthew Crivelli]

Quote from @Michael Furey:

What if I can refinance for 75% and then do a HELOC for the rest?

A second position HELOC will typically only go up to to 80% LTV. Banks / Lender have zero interest in mortgaging a property over 80% LTV. 

[Jessica Angulo]

If you purchase within 6 months, do a DELAYED Financing, which allows you to access 80% LTV of purchase price with terms equal to a purchase (better rate than refi).

However, if improvements were substantial then indeed a Cash out refi will be your best bet, and depending on your credit score, and cash flow you will be between 75%-80%. 

[Devin Peterson]

Quote from @Michael Furey:

I bought a house to flip and just listed it to sell. I’ve researched the rental market here and it’s pretty good. I’m now contemplating just keeping it and renting it. Only problem is, I’d like to get as much of my money out of it as possible. Are there any options for this where I can get 100% (or even close to it) in a refinance?  Anything creative?

Hi Michael, if your strategy shifts and you plan to hold - the best option for you is a DSCR cash out refinance. Most lenders will offer up to 75% of the new ARV. There are also some odd ball programs out there that will allow you to do a 2nd DSCR HELOAN to get some remaining equity but the property must still debt service 1:1. Happy to connect and chat more about your scenario. Good luck!

[Caleb Brown]

As others said 75% is where you'll be. No way around it. A bank would not give you 100%. If you need all the money out flip until you are in the position to hold. BRRR's are meant to replenish most or all of the money you put into a deal so you can buy more faster

[Erik Estrada]

Hi Michael, 

This answer depends on the initial purchase price, rehab cost spent, and the ARV. IF the total cost is less than 75% of the ARV, then you should be able to refinance most of your initial cost. HELOCs on investment properties only allow 75% CLTV.

[Carrie Matuga]

You might be able to get 100% of your money out, but not 100% of equity out. Typically on a cash out refinance you are limited to 75% but can go up to 80% depending on DSCR.... If you go to 80% do expect to pay a pretty signficant "penalty" for the higher levereage - think 1 point higher in rates.

[Stacy Raskin]

There are DSCR lenders that will use the new appraised value after three months from the funding of the last transaction. That can help with getting more out of the property if you made any improvements from when you purchased it. There are other DSCR lenders who require 6 months seasoning / waiting period from the last transaction. 75% LTV is a better rate compared to 80% which will increase the rate and make it harder to reach a DSCR 1 ratio. A DSCR 1 ratio is usually required by many lenders for best terms (some require higher such as a DSCR 1.2 ratio) so having a higher rate for 80% LTV makes that more difficult.

More on DSCR loans: DSCR loans won't use your income to underwrite the loan.

DSCR loans are based off of down payment, credit score and either actual or market rents so it helps to supercharge an investor's real estate goals and net worth.

Here's a bit more in detail about how rates are calculated for DSCR loans:

1. Credit score- the higher the best. 760-780+ generally gets best pricing for investment property loans with most lenders. From there every 20 point increment affect pricing differently. So for example, a 761 credit score will be in the 760-779 credit category, then going down to 740-759 and so on.

2. Loan to value ratio: The higher the loan to value ratio (LTV) is, pricing takes a hit. So your pricing will be higher for a 80% LTV loan than for a 60% LTV loan.

3. Prepayment penalties- usually 1-5 year terms. The shorter the prepayment term has an impact on increasing the rate.

4. Are you cash flowing the property? More on how that is calculated below. Is your DSCR ratio greater than 1-meaning are you cash flowing (according to the lender's criteria of mortgage, property taxes and insurance (and HOA) if applicable). Many lenders will not do a DSCR loan unless cash flowing. If they will do a loan with less than 1, the pricing takes a hit. This criteria is for 1-4 and 5-8 unit programs.

I've included an example below to help illustrate this.

So different lenders have different rates (which do vary even for DSCR loans) but these are factors they all consider.

See example below:

DSCR < 1

Principal + Interest = $1,700

Taxes = $350, Insurance = $100, Association Dues = $50

Total PITIA = $2200

Rent = $2000

DSCR = Rent/PITIA = 2000/2200 = 0.91

Since the DSCR is 0.91, we know the expenses are greater than the income of the property.

DSCR >1

Principal + Interest = $1,500

Taxes = $250, Insurance = $100, Association Dues = $25

Total PITIA = $1875 Rent = $2300

DSCR = Rent/PITIA = 2300/1875 = 1.23

If a purchase, you also generally need reserves / savings to show you have 3-6 month payments of PITIA (principal / interest (mortgage payment), property taxes and insurance and HOA (if applicable). If a cash out refinance, many lenders will allow the cash out to satisfy the reserves requirement.

DSCR lenders generally let you vest either individually or as an LLC. It's a great way to increase your net worth and these loans can also be used to pull cash out of a property as it appreciates allowing you to reinvest money into new deals.

Happy to discuss further.