What is best approach to obtain equity?

Question

We just purchased and updated our 3rd single family investment property. We combined a HELOC and cash to purchase the property, around $36K invested. Now that the property is up and running, I would like to recoup my cash and reset the HELOC to its fullest amount. I’m not sure if this is even possible…Here’s where I need your experience!

A conventional loan would be great, but I’m not sure if that’s possible since I own the property. It seems like I would be pawning the deed. So far I have the BuyRehabRent taken care of, but I’m not sure if I can refi a home that isn’t financed with a conventional loan.

I’ve seen posts that offer private/hard money lending, but they require a minimum of double what I would need. This could be a good thing… I have another property that is paid for and has relatively decent amount of equity. Could I possibly roll the 2 properties into one loan?

I’m looking for advice and suggestions from individuals who have EXPERIEMCE in these situations. My goal is to earn the greatest return on my assets without getting overextended.  Thanks for reading and your time!

Thomas Williamson · Answer

@Jerry Padilla I just sent an e-mail over regarding the financing and cash out refinancing options you posted about.  Look forward to hearing from you.

Mike H. · Answer

I think you can use the delayed financing program. But I believe that may only go up to 4 properties. So once you have 4 mortgages, you may not qualify for that program any longer. Still, it should work for this one.

With delayed financing, I believe you can get the lesser of 75% of the appraised value or whatever your purchase price plus rehab costs were.

So if you bought a house for 60k and put in 20k and it appraises for 100, you can refi that house for 75i.  If you bought a house for 60k and put in 10k, you could refi that house for the 70k.

The idea is they will let you get your costs back out but not pocket money.

You can wait for the house to season and do a cash out refi (conventional loan).

Or you can look at a commercial loan with a local bank. Their terms won't be as good (typically 5% for the rate, amortized over 20 with a 5 yr balloon), but they'll let you refi it and pull your cash out up to 70 and sometimes 75% LTV with no seasoning.

Graham Nash · Answer

Thanks for the info! Looks like I have some homework to do... I'm going to start with figuring out my DTI. I have all of our expenses and incomes, but have never clearly defined our DTI. The difference btwn front end and back end DTI is some what of a mystery to me. Pretty sure I wont have to look far to find a good forum on the topic. Thanks again.

Corby Goade · Answer

You can cash out with most conventional lenders up to three mortgages. Once you have a fourth, you'd need to use delayed financing up to your 10th, then private and portfolio from there on out.

With delayed financing, you can get up to 70% LTV on SFH and 65% on MFH. I'm right in the middle of my first delayed financing refi right now, so I've been reading a ton to figure it out.

If you only have three and you meet all of the other conventional criteria, I'd talk to your favorite bank/credit union.

Jerry Padilla · Answer

@Graham Nash

I have used the BRRR method with investing and my clients do it all the time as well. I have owned homes, free and clear, hard money and FHA and refinanced all to conventional.

As long as the home is in your individual name, and your credit and DTI's support the mortgage you should be ok. You can use rental income as long as you have a mortgage history. You don't need a 2 year rental history for conventional.

Let me know if you have any other questions. I focus my business on investor financing as well as have used the methods myself.

Luc Boiron · Answer

I don't know about rolling two properties into one loan and the minimum loan amounts, but I know that it is possible to refinance a home that doesn't have a loan on it.

I have done it. I bought a property with cash, closed on the property, then refinanced to take my money out. There were more legal fees (closing costs) than if I had done the mortgage registration and the closing at the same time, but it was still worth it.

What is best approach to obtain equity?

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