Happy Pre-Thanksgiving to everyone! Lots to be thankful for!
I am under contract with a property I am buying subject to existing mortgage and also giving the seller a promissory note for $10k over 5 years. My plan is to fix it up, rent it out, and refi once tenants are in and house is fixed up. I need to recoup most of my $35k rehab expense thru a cash out refi. The property is being bought for $100k and ARV is around $200k. Current mortgage bal is $90k, 4%, with 23 yrs left, which is a great mortgage to have, but with the rehab needed, I was hoping to recoup those funds in a refi, even if I have to give a point or two on the rate.
I am concerned that a bank may not refi to an "LLC", or either give me a horrible terms. Before reaching out to banks, I knew BP community would probably have more unbiased knowledge & experience to share than any bank I reach out to.
I greatly appreciate everyone's time and thoughts!
All the Best!
@Alan Daniels can certainly help in this area but I wanted to be 100% sure of what is transpiring here:
- You have a loan for $10k on the home
- You also have a loan for $90k on the home?
- Do I have those right?
- You will also be spending $35k on rehabbing the home
If those 3 things are right, you will have a first lien of $90k, a 2nd lien of $10k? Let me know if I have anything incorrect because that will help me tell you what to do next. Thanks!
@Andrew Postell Hey Andrew, yes that is all correct. Thanks
@Alan Daniels ok, then you will be able to get a traditional Fannie/Freddie "cash out" loan in about 6 months after purchasing the property. The cash out loan will be at 75% of the After Repair Value. So if the property is worth $200,000, 75% = $150,000. Payback the $100,000 in existing loans, let's say $5k in closing costs maybe, so $45,000 to you or so.
Now, the LLC thing is a little bump here. Fannie/Freddie will not lend with an LLC on title. So we would just change title to your name personally on the day of closing, then change it back to your LLC the day after closing. That's how most set it up.
Now if you were to say "hey, removing my LLC from title is a deal breaker" then we would need a commercial/portfolio loan. That's the loan type that comes from the lenders own "portfolio" of money (thus the name). Fannie/Freddie money = Fannie/Freddie rules. Bank money = bank rules. And while it's hard for me to speak for EVERY lender here, most portfolio loans are generally 20 year adjustable rate mortgages. And that's why most investors TRY to get the Fannie/Freddie money first. Better terms and better rates. Also, easier to find.
*WHEW* Hope that wasn't too much information but let us know if you have any other questions. Thanks!
@Andrew Postell . Good stuff! Thank you very much.
So basically just close in my name and deed it into the LLC the next day, right?
@Alan Daniels that is it. That's what many investors do.