Cash out refinance to buy another property with cash. Mistake?

[Tammi Bieniek]

Hello! I am closing on Tuesday on a triplex that I'm buying for 100k. I plan on making the 2 bottom units STR nursing professional furnished and the top unit a Airbnb.

Seller is giving 5k back for closing costs. I originally was going to get a hard money loan with renovation expenses of 30k. ARV is around 175-185. All in 125k

I have a 4 plex that I own free and clear and the lender said it would be easier just to do a cash out refinance on that and buy the triplex with cash. I agreed because I just did a cash out refinance with my other 4 plex

But now I’m thinking that maybe I shouldn’t do the cash out refinance on the second one.

I want to convert both 4 plex to STR for traveling nurses and I need to make updates to do that. I also bought a small cabin for 50k cash that I want to make into a Airbnb. It needs about 25k of rehab. ARV on that is about 99k very conservatively.

My question is can I do an immediate cash out refinance on the triplex to get my cash out so I can do the upgrades I want to do? Or any other creative ideas? Thanks!!!

[Jason Wray]

Tammi,

The only way to get cash immediately out of the Tri-Plex or any residential property is if you purchased it all cash.  If you do not wait for the (6) months requirement for title seasoning you would have to pay all cash and the bank/lender uses the cash purchase price as the value. (no appraisal)

You would be better off doing a cash out refinance on the other 4 plex or other property to take out the cash to buy the new property all cash.  You would then be able to take out cash right away with no seasoning or (6) month delay.  Are you getting a good rate for the cash out refinances especially on the 4-plex?  I would be curious to see the offer...

Feel free to reach out.

[Tammi Bieniek]

Thank you! I was worried I would have to do a 6 month seasoning on a cash buy. Turning all my units into STR and furnished monthly is a pivot for me since I have only done LTR. The cash out is 75% LTV at 4.875 30 year fixed with the option to buy the rate down.

[Dan Portka]

Originally posted by @Tammi Bieniek:

Thank you! I was worried I would have to do a 6 month seasoning on a cash buy. Turning all my units into STR and furnished monthly is a pivot for me since I have only done LTR. The cash out is 75% LTV at 4.875 30 year fixed with the option to buy the rate down.

you don't need to wait 6 months. check this out:

https://selling-guide.fanniema... you'll be limited to the greater of $100K or 75% of the appraised value. 

Or you could try a HELOC.

[Tammi Bieniek]

Thanks for the info Dan!  I didn’t know that!  

[Nick Belsky]

@Tammi Bieniek

Ok.  So there is a much better way to do this.  Do the Cash Out refi as you mentioned. Use that cash to buy another place, cash in full.  This is where people forget or don't know.  There is no seasoning period for a cash purchase.  You can use Deferred Financing to pull your cash right back out of the home you just bought.  Deferred financing is all about speed and keeping your cash liquid.  

Let's lay that down again.  Do the cash out refi and buy a new property with cash. You have up to 6 months to use deferred financing.  You can do it the day after you close on the cash purchase or 3 months later... whatever.  Some programs allow you pull 100% of whatever cash you invested right back out.  You are left with a mortgage on the property you paid cash for, all your cash in your hand, and, hopefully, positive cash flow from your new property.  

Cheers!

Nick Belsky

[Andrew Postell]

@Tammi Bieniek to answer your question - can you do an immediate cash out refinance...the answer is yes.  But I'm not sure it's the right method here.  Meaning, if you just want to get the cash out to do the rehab....and nothing else....then that's fine I guess but you certainly would be leaving a lot of money in the property.  And you might be totally ok with that but most of us want to get as much money back out of a property so we can go get another income producing property.  The more income producing properties we have, the more money we make.

So if there were a perfect way to structure this transaction I would have used a Hard Money Lender (HML) to lend me 75% of the ARV. 75% of the ARV = $138,000....essentially $0 out of my pocket. Then I would use a commercial/portfolio lender to lend me based on the Short Term Rental (STR) income of the property. That would also be right at the full loan balance of the HML. So maybe $1,000 out of my pocket in total? Maybe even less. And that's how we do the BRRRR method to perfection. You found the perfect deal, we just need to learn how to structure it in a way to limit your own money. Leverage someone else's money - not your own. Less risk for you. Now did you save a little bit of money by using your own money? Yes, but you had to use $100,000 to save what? a couple of grand? It's not worth it. Just take the expense as part of the deal and count your blessings. I hope what I am describing makes sense but certainly ask more questions if you need. Thanks!

[Tammi Bieniek]

Thank you Andrew!  Will I be able to get cash out of the triplex because I bought it empty, the owner passed and the tenants left.  So now I want to turn it into the travel nurse and airbnb model.   So I can't prove rental income yet and need some extra cash to do the renovations.