Exit strategy advice

7 Replies

Hey all, 

Just curious to see if anyone can validate this exit strategy for a wholesale deal. First off this is purely an example and all of the numbers I use are just for illustrative purposes. 

So if I were to get a house under contract for let's say 50k and it rehabbed for 25k would this work? I get financing through a hard money lender and renovate the property up to rental quality and then rent it out. The ARV is now 100k. Could I get a traditional lender to finance the property at 70%LTV? If so would that be done without money down on the refinance?

So in essence I wouldn't  have to put any money into the deal considering the rental income would pay the hard money lender until it was refinanced. 

Is this something that can be done or is done commonly among buy and hold investors? My goal this year is to do one wholesale, one flip, and aquire one rental property. 

Originally posted by @Blake Reynolds :

Hey all, 

Just curious to see if anyone can validate this exit strategy for a wholesale deal. First off this is purely an example and all of the numbers I use are just for illustrative purposes. 

So if I were to get a house under contract for let's say 50k and it rehabbed for 25k would this work? I get financing through a hard money lender and renovate the property up to rental quality and then rent it out. The ARV is now 100k. Could I get a traditional lender to finance the property at 70%LTV? If so would that be done without money down on the refinance?

So in essence I wouldn't  have to put any money into the deal considering the rental income would pay the hard money lender until it was refinanced. 

Is this something that can be done or is done commonly among buy and hold investors? My goal this year is to do one wholesale, one flip, and aquire one rental property. 

 First, this strategy has nothing to do with wholesaling.

Second, the refi will cover everything at that point, and you wouldn't need to come up with any new cash at refi.

Third, I've never in my life seen enough cash flow from the rent to pay the monthly payments on any HML. Your goal should be to do as follows (Assuming you're using a HML to buy and rahab this property:

1 - Get pre-approved for your refinancing.  If you wait until after you have refinanced, and on the line for the HAML payments (and payback), and don't get approved, well....DON't DO THAT.

2 - Line up the HML, buy and rehab the property

2 - Be ready to refi ASAP, to get out of the HML. You should be able to refi without a tenant in place, although some lenders want to at least see a lease agreement ready to be executed.

3 - Pay off the HML, and cash flow the property.

You have to pre-qual for the refi to see if can get the money, and to see what the payments would be so you don't end up with a property that doesn't cash flow.

@Joe Villeneuve

I guess I forgot to mention that I was considering this concept if I couldn't find a cash buyer for a wholesale property. I was referring to this being a back up in that event. 

Thank you for all the extra info as well. And I wouldn't necessarily rely on the rental income to cover the HML loan but it would help cover it if I needed it to depending on the terms of the loan.

My main curiosity was just if the bank would require money down on a refi in a situation like that and you answered my question so thank you! 

Blake -

Your strategy sounds like the BRRR ( Buy-Renovate-Rent-Refinance )System Brandon Turner talks about. Check out the podcast, it is Great!

Thanks for the input everyone!

I will have to check out / re check out the BRRR webinar. I cant recall if I watched that one or not :)

Im interested in pursuing the BRRR strategy as well, correct me if i'm wrong. 50k for property + 25k in rehabbing= 75k Hard money loan. If the bank will loan 70% LTV and the ARV is 100k doesn't that leave you still needing 5k to refinance out of the hard money loan?

Brent Salazar | [email protected]

@Brent Salazar  @Blake Reynolds

The HML would very likely require a downpayment (skin in the game), so the HML loan might be around 55K in this example. Also remember cash will be needed upfront for utilities, insurance, and also doing the rehab work. Lenders will typically require you to do the work first, then they inspect it, and will reimburse you from the rehab funds.

Hope that helps!

- Tom