How do you pull off the cash out refi in Texas or finance multiple rentals with TX50A6 statute?

23 Replies

I am a newbie, but I have one free and clear rental SFH with excellent cash flow. I wanted to do a cash out refi of about 50% LTV to get the next one or two, but was told by my banker, "can't do it." He said no bank will do a cash out refi on any property that is not your homestead/owner occupied due to a Texas statute TX50a6. That really blew my buy and hold strategy and hopes to build my rental property portfolio all to heck. My banker basically said that it's a cash business and that's the only way I will acquire additional rental properties. I know people must be doing it somehow, some way in Texas without having tons of cash to buy properties free and clear. I have some cash, but don't want to use all my capital up on just a couple of income properties and then find myself up against a wall and not be able to buy any more. We own our residence free and clear but do not want to do a HELOC on our residence. We want that to be our safe haven no matter what happens with our investing. We are middle aged and don't have decades to save and then buy another property. We have great credit and look good on paper. The one SFH income property mentioned above is being held in our LLC and we are building our business credit as we speak. I know you fellow Texans have found a way around this TX50a6 rule. Please clue me in as to how to proceed and acquire additional income properties (buy and hold) for our retirement income strategy. Any advice would be greatly appreciated.

I'm very interested in what the more experienced investors have to say. I didn't know about this statute in TX. Maybe a conventional loan with 20% down or private money are your only bets. I'll keep a close watch on this one to learn about this. Thanks.

I'm not sure this banker knew what he was talking about, is he a licensed RMLO? 50a6 laws apply to homestead properties, capped at 80% LTV on a cash out refi, they do not apply to non owner occupied properties. Consult a true mortgage banker, they may have a program to help you out.

FYI, The LLC title vesting may be an issue for some lenders, programs.

I agree with Tyler. You can read up on more details about Texas specific refinances with a GSE in the Fannie Mae Selling Guide, pages 757-770, at
https://www.fanniemae.com/content/guide/sel073013.pdf

Thanks Tyler and Chris for your replies. I will check that link and I will speak to some other mortgage lenders. Another thing the banker stated (from Chase, BTW-figured he knew what he was talking about) is that they said no-one will let you get additional mortgages in Texas even with 20% down and good credit. I couldn't understand this, but they said it's because the banks are afraid of REI's these days and they don't want to get stiffed if things go south. Is this true of all RMLO's are was he speaking about banks mainly? I was truly amazed at the responses I was getting from the small business loan officer and the bank's mortgage loan officer. They made it sound like it was impossible unless you can buy rental properties with cash, free and clear. They kept trying to get us to do a HELOC on our primary residence. My strategy is to have two or three rental income properties cash flowing and then learn more about and try my hand at rehab/flip, which I have been studying for a while now.

I guess, to boil it down simply, can you get additional, traditional mortgages on properties in Texas strictly for investment properties? Right now we have two properties free and clear and zero mortgages, and as I stated we have the credit and cash for down payments. When we asked this question to the mortgage loan officer at the bank he said NO. Is this just Chase's policy or all banks and is this typical of other types of mortgage lenders these days? I was truly astounded at the lack of help I was getting from my bank, especially given how good we look on paper. Might as well throw this in there too, they also said banks don't do "personal lines of credit" anymore. Signature loans for us old timers. That was quite a surprise too.

With your property in an LLC you are looking at the commercial side for loans.Residential mortgage lenders most likely will not be able to get it done with it in an LLC. That is not a problem, you were just in the wrong department. Speak with a commercial lender and get it rolling. I just closed on a cashout refi with my commercial lender on thursday. In fact I bought in june of this year and recieved more cash out than I bought for plus rehab and all expenses. This was because I had it rented for a month and have experience and they did a quick property evaluation and used that for the 70% loan to value refi.

Thanks Kyle Hipp. I spoke to the small business loan guy at our bank and still hit a brick wall. What type of commercial lender are you referring to? They put it like this: If I own my home, a vacation home and an income property and I start having financial difficulty, which one am I going to stop paying first? My response was, it's a hard asset either way so what difference does it make whether I take out a HELOC on my primary residence or do a cash out refi on my rental property, which has a renter in it on a lease, BTW? They still said no.

BTW, Kyle. That is the exact type of buy and hold strategy I want to do, but folks aren't willing to lend on distressed properties either as I am sure you know. Can't use a hard money guy plus cash of my own if I can't do the cash out refi. I am definitely looking for a solution to this.

Interesting topic - same strategy here, except that we got a HELOC and are about to close on a SFR in St. Louis. We bank with Chase also (MoPac/Slaughter branch in South Austin), and were told we could have up to 5 mortgages per person, and that they would lend on rental properties.

Hopefully we can build a portfolio over time just like you're planning to. Leverage would make it faster. The houses we're targeting in St. Louis are the cost of a car ($33k in this case, rents for $700 or so), so if we can't get a refi (lots of foreclosures there so it may not appraise anyway) we'll just pay down the HELOC as quickly as possible from rents and W-2 income and rinse/repeat.

@Paul Jones , Not sure who your lender is but I was just talking to the VP of my local bank lender the other day about cash-out refi on a free and clear property and was told they could do up to 75% LTV on an investment property. There is a seasoning requirement of 6 months and you have normal reserve requirements. Also, I have purchased investment property # 2 and #3 with conventional financing (20% down) without it every being an issue. Sounds like your guy was trying to sell you on something he wanted. My lender currently has a cap at 4 mortgages but I was told within the next couple of months they will be able to do up to 10 with conventional financing. As someone said in the post, sounds like they don't want your business.

From everything you have posted, I see no reason why you could not do a cash out refinance using Fannie Mae underwriting (subject to their seasoning requirements, reserves, etc.) Using conventional financing is cheaper and has better terms than on the commercial side of the bank. Try another lender after reviewing the "Selling Guide" (link posted above) because that document is the "rule" for what loans almost every US bank will use for underwriting approval on the "conventional" side.

Old thread but it had some very useful info. I am also building a buy-and-hold portfolio in Houston, TX. I have already exhausted my conventional loan options and looking for portfolio or commercial financing for my cash-purchased SFRs.

@Gunnar Teltow , @Daren H. - could you pls. share info of your banks and if you think they would do cash-out re-finance on investment SFR in Houston?

Thanks!

Try Bank of America, we are currently pre qualified for our new home loan and a rental home loan through them at the same time. They have been good to us because we keep a fair amount of money in their bank and have done other loans for us in the past on both our residence and rentals.

I totally understand where Paul Jones is coming from and at this late date i am sure that the problem has already been taken care of. however as a hard money lender (and SubPrime with Alt-Doc and stated income  loans for folks) , Texas, by statute, actively protects homeowners.  The homestead exemption that owner-occupants can claim completely and totally protects their house from foreclosure. So a lender - even a hard money lender - essentially would not have any collateral against a loan on an Owner-occ property. Non-owner - occupied - that's another story and lenders, including me, will do loans on those properties all day long, as there is legal recourse in case of a default. 

And we do not care HOW many rental properties you have - we can still underwrite a mortgage for somewhere between 6.5% -10%, even on a stated income basis.   Texas is Great for investment property loans - just not owner occupied. 

So one of the takeaways is - don't pay all cash for your home/primary residence in Texas because it will remain stuck in the house forever. (LLC ownership by the way, doesn't matter either on an Owner-occ)

What jumped out to me is the LLC structure like @Kyle Hipp mentioned. This is a big difference versus having the property in your name (which you could sell it to yourself if you need to).

Keep us posted on what other banks tell you. I live in DFW and I am preparing to move my properties in a LLC so your topic is a good education lesson for us in TX.

@Steph Kohler  - I talked to my lender after I heard this rumor from a client today.   @Aaron Chapman who is a no fannie mae overlay conventional lender, said he can do cash out refi's on Texas investment properties but it is not as easy as other states.  So yes it can be done.

The property is in an LLC and you were speaking to a consumer lender. Neither is bad but they don't mix well. You need to transfer the asset to yourself personally and hope this Lender just has the wrong interpretation of the statute OR keep it in your LLC, talk to a good commercial/portfolio lender and they should be able to help you out. On the commercial/portfolio side, smaller community Banks are often more flexible and easier to build a mutually beneficial relationship with. I personally have not dealt with a large Bank's commercial department though so that is 100% hearsay.

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