When is the best time to Cash Out Refi

Question

Hi, I plan to cash out refinance a small multifamily. I heard that it's best to get the units rented out prior to approaching a bank to cash out refinance or can I do it after the rehab is complete?

Any local banks recommended to refinance?

Jack Mawer · Answer

Like Charles mentioned, I think the best thing to do here would be to put tenants in there and get a few months of seasoning in before you refinance - this will make the refinance process smoother and most lenders like to see a lease in place on a refi especially if they are qualifying you based on the rental income.

Jonathan E Francois · Answer

Thank you!

Andrew Postell · Answer

@Jonathan E Francois you are welcome.  And a "DSCR" loan is basically a loan where your income does not come into play.  The loan is qualified by the income of the property itself.  So sometimes people say "I don't have any income" or "I write all my income off"....in those scenarios you want to go with a loan that doesn't care about someone's personal "debt-to-income" ratio.  Instead, it goes off the income of the property.  The rates are usually higher for those types of loans so if you CAN qualify for the other types of loans (conventional) you will cash flow better on your property.

Hope all of that makes sense.

Jonathan E Francois · Answer

How does the DSCR route work?

Eliott Elias · Answer

Banks want to see that the property has been stabilized and rented for a period of time. I would go the DSCR route if they don't lend to the asset.

Andrew Postell · Answer

@Jonathan E Francois when you get prequalified it is good for 4 months. I would suggest to get prequalified now.  That way you know the information that you will see later.  Maybe it will help with planning.  And to search for lenders, use that link I posted about above.  That will tell you everything, including what questions to ask your potential lenders.

Jonathan E Francois · Answer

I am in the rehab process, is it still worth to do a pre-qualification? If yes, what are the required documents and which type of lenders are best (local banks, credit union..)

Jonathan E Francois · Answer

Thank you all for your responses!

Matt Cartwright · Answer

@Jonathan E Francois you can refinance as soon as you complete the rehab work on the property as having tenants in there won't make a difference on the value of the home. With no seasoning period we typically just take rents from the market that we find through our systems and if it qualifies we can have the property vacant when the deal closes. Helps save you a few months and some headaches!

Andrew Postell · Answer

@Jonathan E Francois you can do what you want to of course but working with lenders that require ANY seasoning when we are doing the BRRRR method is running counter to what we need with this strategy.  I cannot wait to make money because a lender is requiring me to wait on their timeframe.  I'm either losing money on my hard money if I have to wait or I'm waiting to get my money back out of the property.  In either case, I'm being handcuffed if someone is requiring me to wait.  Hope that makes sense.

When is the best time to Cash Out Refi

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