Cash out refinance success

Cash out refinance success

Investor / Wholesaler · Nashville, TN · Member since 2014 · 1k+ posts · 667 votes

I wanted to post the story of a rental house that we purchased a few months ago and just got done with a cash out refinance.  The numbers are great and I think they will give some of you the motivation needed to pull the trigger on a similar property.  

House is a 4/3 in a gated community. It was a HUD foreclosure and the previous model home in a community that is still building new construction homes. The area is dominated by military, health care, and some executive rentals.

The purchase price was $185k and we put just under $5k into the home for closing costs and light renovations (paint, cleaning, gutters, fridge).  Cash purchase all in at $190k.  

We rented the house out immediately on a long term lease at $1775/month with the tenant responsible for all utilities and lawn maintenance.   So, this house was just under the 1% rule which is what I shoot for in my upscale rental properties.  However, the rent will increase 3% per year so we will get there in about 2 years.  

I contacted my online lender after 2 months of purchase and got the cash out process going, the house appraised at $265k and at 70% LTV I was able to pull out $185,500 on my cash out with no origination fee, 4.5% APR, 30 year am, and $1k lender credit at closing.

So, we now have about $5,500 into the house (due to closing costs) and it is cash flowing at just over $300/month once maintenance, capex and vacancies are included.  I currently self manage our properties but that would drop the cash flow in the future when they all get passed over to PM.

I did need the upfront cash and had to find the deal but for a little bit out of pocket we were able to add a great cash flowing property to our inventory.  And, the day after closing we bought another one with the cash!  

The deals are out there, anyone else have a similar story?

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Gino BarbaroPro Member
Rental Property Investor · St Augustine, FL · Member since 2014 · 2k+ posts · 1k+ votes
10y

@William Allen@Jake Stenziano

Hi William

Great deal.  My partners and I have had success with all of our purchases the past two years.  Our business plan is to buy underperforming multis from burned out motivated sellers.  Our first purchase was a 25 unit property.  We purchased a 136 unit for 4.075 million in feb 2014 that was grossing 50,000 per month with about 30 vacancies.  In 12 months we were able to increase revenue to 85,000 per month through rent increases, fees just by taking care of deferred maintenance and offering great customer service

We went to the bank in December 2014 and tried to refi.  They could not believe the performance of the property and came in with a 5.7 million appraisal which we new was too low.  We struggled for 8 more months until a local bank came in with a 6.5 million dollar appraisal, and we cashed out 1. 6 million dollars 

My mentor told me the way to wealth is to go as big as possible and I did not believe him until this deal.  In business the more peopl you serve the wealthier you will become and it is true in renting to tenants

We are in the process of refinancing our smaller properties, but this would not have been possible if we did not buy right 

Good luck

Gino

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  • Investor · Eastlake, OH · Member since 2015 · 174 posts · 85 votes
    10y

    Great job William!

  • Investor · New York, NY · Member since 2013 · 90 posts · 43 votes
    10y
    Originally posted by @William Allen:

    I wanted to post the story of a rental house that we purchased a few months ago and just got done with a cash out refinance.  The numbers are great and I think they will give some of you the motivation needed to pull the trigger on a similar property.  

    House is a 4/3 in a gated community. It was a HUD foreclosure and the previous model home in a community that is still building new construction homes. The area is dominated by military, health care, and some executive rentals.

    The purchase price was $185k and we put just under $5k into the home for closing costs and light renovations (paint, cleaning, gutters, fridge).  Cash purchase all in at $190k.  

    We rented the house out immediately on a long term lease at $1775/month with the tenant responsible for all utilities and lawn maintenance.   So, this house was just under the 1% rule which is what I shoot for in my upscale rental properties.  However, the rent will increase 3% per year so we will get there in about 2 years.  

    I contacted my online lender after 2 months of purchase and got the cash out process going, the house appraised at $265k and at 70% LTV I was able to pull out $185,500 on my cash out with no origination fee, 4.5% APR, 30 year am, and $1k lender credit at closing.

    So, we now have about $5,500 into the house (due to closing costs) and it is cash flowing at just over $300/month once maintenance, capex and vacancies are included.  I currently self manage our properties but that would drop the cash flow in the future when they all get passed over to PM.

    I did need the upfront cash and had to find the deal but for a little bit out of pocket we were able to add a great cash flowing property to our inventory.  And, the day after closing we bought another one with the cash!  

    The deals are out there, anyone else have a similar story?

     I've got a house that is VERY similiar right now but I'm not done the refi just yet.  I'm going refi through Bank of America at 4.25%, 30yr fix, 25% down (actually 0 out of pocket).  Purchased + reno costs were 135k, appraised at 192k.  Rent, with tenant paying all util/lawn is 1675/mo (non-sec 8), signed 2 year lease- renter has 11 yr prior rental history same location.  I've projected $525-575 cash flow after capex (roof in 7-10 yrs, all other systems are new).  I'll update on how long the refi paperwork process takes but i'm hoping to have it soon.  

  • Investor · New York, NY · Member since 2013 · 90 posts · 43 votes
    10y

    *the rate on my refi was lower due to being platinum blah blah with the bank and they waived all but 450$ in origination

  • Boston, MA · Member since 2015 · 72 posts · 16 votes
    10y

    Congratulations, I love hearing about refinance deals. living the dream

  • Registered Nurse (ICU) · San Jose, CA · Member since 2014 · 496 posts · 332 votes
    10y
    William Allen do you or anyone out there know the specific rules/guidelines for cash out refinancing. Things like seasoning? Credit scores and stuff like that?
  • Investor / Wholesaler · Nashville, TN · Member since 2014 · 1k+ posts · 667 votes
    10y

    @David Kosiorek

    Those numbers sound great, congratulations. I haven't been successful with the big brick and mortar banks and usually direct people away from them. My rate and LTV were higher due to the amount of financed rentals I have. But those terms sound pretty good to me, good luck!

  • Investor / Wholesaler · Nashville, TN · Member since 2014 · 1k+ posts · 667 votes
    10y

    @Account Closed

    Take a look at these links, they will have the answers you are looking for. The delayed financing exemption will allow you to do a cash out refinance before the home has seasoned for 6 months. There are matrices on here as well that show the max LTV and min credit score needed depending on what kind of property and type of loan.

    https://www.fanniemae.com/content/guide/selling/b2/1.2/03.html

    https://www.fanniemae.com/content/guide/selling/b2/2/03.html

    https://www.fanniemae.com/content/eligibility_information/eligibility-matrix.pdf

  • Investor / Wholesaler · Nashville, TN · Member since 2014 · 1k+ posts · 667 votes
    10y
    Originally posted by @Juan Vargas:

    Congratulations @William Allen on the great deal! And to add to that you purchased another once you got your cash back. Nice!  Thank you.

    The second one was a challenge, I had it under contract for a closing on Sep 28th (it had to close before the end of the fiscal year) and my cash out was supposed to be closed the middle of Sep.  Well as you would probably expect, the refi closing got pushed and pushed and I was running the risk of not have the cash to close the new purchase.  Fortunately, I was able to push the new house to the 29th and I closed the cash out refinance on the 28th.  Talk about cutting it close!

  • Investor / Wholesaler · Nashville, TN · Member since 2014 · 1k+ posts · 667 votes
    10y

    @Percy N.

    With the delayed financing exemption you don't have to wait for the property to season, you do need to meet all the other requirements though and it is a bit of a hassle just like a regular residential home loan, tracking money, showing reserves, credit check, appraisal, etc... But it can be worth it. The LLC is not a deal breaker either, if you look at the first link I posted above you will see that as long as you own 100% of the LLC it can be done. My long term buy and hold rentals are in my personal name with a large umbrella policy for liability coverage though instead of in my business.

  • Rental Property Investor · Gainesville, FL · Member since 2015 · 1k+ posts · 432 votes
    10y
    Originally posted by @William Allen:

    I wanted to post the story of a rental house that we purchased a few months ago and just got done with a cash out refinance.  The numbers are great and I think they will give some of you the motivation needed to pull the trigger on a similar property.  

    House is a 4/3 in a gated community. It was a HUD foreclosure and the previous model home in a community that is still building new construction homes. The area is dominated by military, health care, and some executive rentals.

    The purchase price was $185k and we put just under $5k into the home for closing costs and light renovations (paint, cleaning, gutters, fridge).  Cash purchase all in at $190k.  

    We rented the house out immediately on a long term lease at $1775/month with the tenant responsible for all utilities and lawn maintenance.   So, this house was just under the 1% rule which is what I shoot for in my upscale rental properties.  However, the rent will increase 3% per year so we will get there in about 2 years.  

    I contacted my online lender after 2 months of purchase and got the cash out process going, the house appraised at $265k and at 70% LTV I was able to pull out $185,500 on my cash out with no origination fee, 4.5% APR, 30 year am, and $1k lender credit at closing.

    So, we now have about $5,500 into the house (due to closing costs) and it is cash flowing at just over $300/month once maintenance, capex and vacancies are included.  I currently self manage our properties but that would drop the cash flow in the future when they all get passed over to PM.

    I did need the upfront cash and had to find the deal but for a little bit out of pocket we were able to add a great cash flowing property to our inventory.  And, the day after closing we bought another one with the cash!  

    The deals are out there, anyone else have a similar story?

    Great job!

    Thanks for sharing. Are the taxes and insurance lower in that area?

  • Developer · Houston, TX · Member since 2015 · 1k+ posts · 1k+ votes
    10y

    Congratulations. Also, maybe I missed it but how are you cash flowing better after the refinance?

  • Investor · Frankfort, IL · Member since 2015 · 206 posts · 55 votes
    10y
    Congrats.
  • Gino BarbaroPro Member
    Rental Property Investor · St Augustine, FL · Member since 2014 · 2k+ posts · 1k+ votes
    10y

    @William Allen@Jake Stenziano

    Hi William

    Great deal.  My partners and I have had success with all of our purchases the past two years.  Our business plan is to buy underperforming multis from burned out motivated sellers.  Our first purchase was a 25 unit property.  We purchased a 136 unit for 4.075 million in feb 2014 that was grossing 50,000 per month with about 30 vacancies.  In 12 months we were able to increase revenue to 85,000 per month through rent increases, fees just by taking care of deferred maintenance and offering great customer service

    We went to the bank in December 2014 and tried to refi.  They could not believe the performance of the property and came in with a 5.7 million appraisal which we new was too low.  We struggled for 8 more months until a local bank came in with a 6.5 million dollar appraisal, and we cashed out 1. 6 million dollars 

    My mentor told me the way to wealth is to go as big as possible and I did not believe him until this deal.  In business the more peopl you serve the wealthier you will become and it is true in renting to tenants

    We are in the process of refinancing our smaller properties, but this would not have been possible if we did not buy right 

    Good luck

    Gino

  • Andrew SyriosPro Member
    Moderator
    Residential Real Estate Investor · Kansas City, MO · Member since 2014 · 10k+ posts · 5k+ votes
    10y

    Congrats William! Unfortunately, even with the BRRR strategy (as Brandon calls it), you usually leave a little money in the deal, but that sounds like you did very well. We recently refinanced 14 at one time and got most of our money out. We're doing another three next week and that one we actually won't have any money left in at all, which is great. But usually we leave a little in.

  • Cedar Park, TX · Member since 2015 · 377 posts · 200 votes
    10y

    @William Allen

    Congrats on the refi.  Also, thanks for posting the links.  There was a lot of good info there.

  • Investor / Wholesaler · Nashville, TN · Member since 2014 · 1k+ posts · 667 votes
    10y

    Taxes on this property are around $1600/year and insurance is around $800/year.  So I would say they are low compared to most of Florida.  

  • Investor / Wholesaler · Nashville, TN · Member since 2014 · 1k+ posts · 667 votes
    10y
    Originally posted by @Michael Le:

    Congratulations. Also, maybe I missed it but how are you cash flowing better after the refinance?

    You didn't miss it, I'm not cash flowing better after the refinance but I did add another asset to my net worth statement for only $5,500 out of pocket.  And because of that, I was able to buy another cash flowing rental the day after the cash out refinance.  My cash on cash return for this asset is through the roof and leverage was able to make that happen.  

    I'm sure you have heard that real estate is the IDEAL investment and L - Leverage is one of the reasons why.  This is just an example of a creative way to obtain a house for little out of pocket (in the end, a lot upfront).  

  • Investor / Wholesaler · Nashville, TN · Member since 2014 · 1k+ posts · 667 votes
    10y

    @Gino Barbaro

    That is the next step, it looks like you are a few years ahead of me with similar interests.  I am exploring large value ad apartment complexes and commercial real estate now.  Thanks for posting the numbers, it keeps me motivated to go bigger!

  • Gino BarbaroPro Member
    Rental Property Investor · St Augustine, FL · Member since 2014 · 2k+ posts · 1k+ votes
    10y

    @William Allen

    I would not say a few years, a lot closer than you think.  I have 2 terrific partners that helped us create a very good business. We did everything creative for this deal, broker holding a note for part commission, 15% down, partner lending money to business and on and on.  The only difference to my success was that I saw a huge upside and the partnership did whatever it could to get the deal.

    Momentum takes over and things just start to happen if you believe. I know you are a lot closer than you think

    Gino

  • Investor / Wholesaler · Nashville, TN · Member since 2014 · 1k+ posts · 667 votes
    10y

    @Gino Barbaro

    I totally agree with you on the momentum piece, once the snowball gets going it just keeps rolling and getting bigger and bigger.  That is one of the main things I love about this business, you put in the effort up front and after some time, deals will start finding you.  Hopefully I'll be posting about some large deals over the next year, that is the goal.

  • Gino BarbaroPro Member
    Rental Property Investor · St Augustine, FL · Member since 2014 · 2k+ posts · 1k+ votes
    10y

    @William Allen

    Let me know when you land your next deal

    Gino

  • Rental Property Investor · Gainesville, FL · Member since 2015 · 1k+ posts · 432 votes
    10y
    Originally posted by @William Allen:

    Taxes on this property are around $1600/year and insurance is around $800/year.  So I would say they are low compared to most of Florida.  

     Taxes are far less than where I am. It's brutal up here.

  • Visalia-Fresno, CA · Member since 2009 · 1k+ posts · 863 votes
    10y

    Good story. My best Cash out Refinanced properties are the ones when you take a calculator, figure the COC return and you get an error sign.


    Frank

  • Investor / Wholesaler · Nashville, TN · Member since 2014 · 1k+ posts · 667 votes
    10y

    @Franklin Romine

    Thanks for posting, that's what I was going for and we almost made it. Close enough for me!  

  • Rental Property Investor · Midlothian, VA · Member since 2015 · 6 posts · 0 votes
    10y

    @David Kosiorek - how is it working with BofA and the other big banks?  We've always gone thru the smaller local banks ... do they make you wait some number of months for seasoning?  Require specific LTVs?

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