Purchasing home in cash, then get mortgage?

Question

I'm looking at my first rental property. Asking price is down to $40k, and the house was sold in 2012 for $100k. The house was rehabbed in 2016. There is a long term tenant in place paying $800 per month. Cash flow will be 200-250 depending on how I structure the financing.

Instead of investing 8-10k in down payment/closing costs, my thought is to offer $35k cash, and then get a mortgage out to recoup my dollars and move my cash to the next investment.

I've read that DFEs base the loan off of the purchase price, so that wouldnt help. Cash out refi has a seasoning period which is fine, but I get stuck on the term refinance considering I dont have a mortgage to refi.

Line me out biggerpockets! I appreciate the communities input.

Annchen Knodt · Answer

@Spencer Crist, wow that really does sound too good to be true, but congrats if you have actually found yourself a home run! I will add that when weighing the cash purchase + refinance later strategy against simply purchasing with financing, another thing you want to keep in mind is that you will be paying some closing costs twice (e.g., title company / attorney fee, recording fees, etc)  I have done this once and am thinking of doing it again, since a cash offer is more competitive and the numbers still seem to work with the homes I’m considering (I’ve estimated that the extra cost in my case is ~$1200, which doesn’t kill the deal)

Spencer Crist · Answer

@jaysenmedhurst I agree, it does seem odd that an investor hasnt snatched this up yet. It seems like a home run to me. It's in a small rural town, so maybe not alot if investors? Or its possible that there are some underlying issues with the property. I'll have to get committed to see it, as there are tenants in place.

Jaysen Medhurst · Answer

What you're describing is called "delayed financing," @Spencer Crit. Not uncommon. Most lenders will lend based on the purchase price, unless you wait 6+ months. In that case, they'll require a new appraisal.

Biggest question is why is a recently renovated house selling for 40% of post-recession FMV? Sounds a little too good to be true.

Joseph Cacciapaglia · Answer

Several lenders here in SATX would let you take 75% of the appraised value out of the home after holding for 6 months in that scenario. Some will let you take 75% of purchase price immediately. If I were in your situation, I would be running this by my lending partners to get the real deal up front.