Hey there Brainstorm,
I'm curious what can be expected, or even possible, as far as refinancing to get cash out. I keep running up against 75% max loan to value. Is this really the ceiling? I'm looking for more cash out and who does these (and what it's called if this type of loan has a specific title).
@Bukka Levy there is a lot to this question because it strongly depends on HOW you acquire the property and then WHAT you can personally qualify for. So let's assume you can qualify for anything and everything - what was your plan to acquire the property? Have you thought about that yet?
@Andrew Postell thanks for the questions. Yes, I can qualify for whatever.
My plan? I suppose I wasn’t clear about my situation. I bought, rehabbed, and rented a property with the intention of refinancing and repeating.
I did pay a relatively high price plus my rehabs costs, so 75% is not going to get me enough cash out to do much.
Is that helpful?
@Bukka Levy did you acquire the property with cash or did you buy using a loan?
A loan, though I don’t see what that has to do with what percentage of the value I can refinance out.
Can you give me an idea of where you’re going with this? Thanks
@Bukka Levy yes, I am asking these questions in order to provide the proper information that you need. Not to waste time.
- When did you close on the home?
- What is the amount of the loan you received?
- What value do you expect the home to appraise for?
- Is this a single family home? Or a 2-4 unit?
Thanks for your patience. Can I assume by this line of questioning you're saying there are refi's that cash out above 75% LTV?
These are great questions and exactly what I want to understand, so if that’s the case, what would the answers to these questions need to be to get such a loan?
Full disclosure I have not cashed out as much as possible from a SFR. I believe that lenders want you to have at least 20-25% still in the building and honestly you do not want to take so much out of the property that you have a negative CF. In terms of you only getting 75% LTV and it not being enough to do anything that is why I moved to bigger properties. I am buying a 14-unit and renovating it. The nice thing about a 5+ unit building is that the value is based on the money it makes so you have a better idea of the value of the building. Also when you pull out cash it maybe close to the same percentage but it is a lot bigger number. For instance I will be able to pull out $500,000+ in about 2 years (6-8months reno and then I need to have it stabilized for about 12 months to get agency debt).
Once I pull the money out the property will support itself and considering I will get long term debt, 10yr term/30yr am w/ 1-3yr I/O. That allows me to CF well while the rents increase over that 1-3year period. The key is the number of units will drive up the NOI quicker than a SFR.
@Nick Robinson thank you, these are great points. I hadn’t had trouble with this 75% limit until I started investing in the mid-west where things appreciate slower.
I try to buy properties with high enough rents to afford a cash out refi and still cash flow, but as I mentioned, I didn’t factor that in when I started in the mid-west. Lesson learned.
I’ve been wanting to get into multi, just haven’t found the right deal yet, and it sounds like I need to consider this when planning.
Back to evaluating...
Yeah we all learn things as we get going. For instance the first MF I bought was more or less a turnkey property just had to add RUBS to the tenants. I went that way because I figured I did not have the money to do a renovation. This next property I found a local bank that will give me a construction loan that rolls into perm. financing that is I/O for 18mo while I renovate the property and they roll those 18 I/O payments into the loan amount. They also finance the rehab. On this deal I had to come in at 70% LTC but they say they will go up to 75%, I assume as I develop more of a relationship with them. That is why everyone says that you just have to take the leap. Most people will just sit back and analyze things to death or not make a decision because they are scared/nervous. You will never know everything but you will learn a lot just by doing it.
@Nick Robinson another great reminder. I need to make more of an effort to build creative lender relationships.