All Forum Posts by: Annchen Knodt

Also @Jay Ingersoll, for the rehab funds, they generally go into an escrow account which you can draw from as the rehab progresses.  I've done it through an attorney (rather than a title company), and roughly once a week I'd request a check for the amount I needed to pay my contractors that week and pick it up from him to pay them.

I think I can help with some of your questions - I've gone through an application for delayed financing so am familiar with the process. My application ending up falling through because the funds for purchase were sourced from my partnership's bank account and I was applying for the loan in my name - hoping to help others avoid this issue! So, first of all, definitely be sure you are able to document where the cash for the purchase is coming from, and that it's purely YOUR cash if YOU are the one applying for the loan (a HELOC on your residence is ok). This blog post has lots of great tips for succeeding with delayed financing (and the comments are helpful also)

But to answer your questions:

1. You will give the HUD form to your lender when you apply for DF, and that's how they will know how much money you put in up front. The amount you can get for DF is limited to this amount or 75% of appraised value (whichever is LOWER), which is why having the rehab costs on the HUD to get included in this calculation is a really good move!

2. I think the rehab funds will usually just be a line item (see blog post linked above for an example)

3. Your lender will also order an appraisal since it gets used as mentioned in #1 above. Ideally 75% of the appraised value is greater than the amount of cash you put in for purchase (which remember can include the rehab if you put it on the HUD, and closing costs too!), so that the amount of cash you can get out won't be limited by the appraisal.

4. I'm not sure if rehab "has to" be completed before you apply for DF, but it's usually in your best interest because it will boost the appraised value which is obviously desirable (see #3). If you've landed a REALLY awesome BRRR deal and earned a large amount of equity from your rehab (say you buy it for $40k, rehab for $10k, and ARV is $100k), then you may want to wait the 6 month seasoning period until you can do a normal cash-out refinance where you are NOT restricted by the amount of money you put in initially as you are with DF (in the example, with DF you would be restricted to $50k cash out = $40k purchase + $10k rehab, even though 75% of your ARV is $75k… after the 6mo seasoning you could get that full $75k though!) I've heard that some lenders will do that even before the 6mo seasoning, you just have to call a lot of banks.

5. And don't forget my point about sourcing your funds!  Also, I've been looking into another DF recently and lots of lenders are telling me that it's very hard to do that right now bc of the pandemic's effects on the investment lending markets.  Everyone's been telling me to just wait the 6 months … I haven't called all that many lenders though because at this point I'm getting pretty close to the 6 months anyway.

HTH!

Hi @Marvin Z., yes delayed financing is what you are looking for!  This blog post has lots of good specific tips on doing it successfully: https://www.biggerpockets.com/...

@Darren Mesibov, seems like Mike has explained it pretty well. For my situation, the question was whether to get the loan in my name or the partnership's LLC, where the latter would require a commercial loan with less favorable terms. I think at one point we did consider the route of just adding my partner's names as co-borrowers (rather than using our entity), but didn't want to have to go through the whole process of underwriting on each of them (one is my dad who is retired), and the 6 month mark wasn't too far off at that point anyways, so we just waited.

Yes, definitely be careful and document how you source the funds for closing!

Hi @Danny Kaminsky,

I just moved out of Durham after having lived there 11 years - I have big regrets about not having bought a home while I was there and pretty much doing what you're doing!  It's definitely a great area to be optimistic about.  I'm now living in MD where I bought a condo based on the fact that I can rent it out and it should cashflow when I move out (which probably won't be long), so I've at least also convinced myself that that's a good idea especially with the low interest rates right now.

I also enthusiastically second Mitch's suggestion to consider house hacking with roommates (or if you happen to find something with an ADU or even a duplex that would definitely open so doors for you)

Good luck - hope you find something that works!

Hi @Darren Mesibov,

Actually, the rules state: 

"The new loan amount can be no more than the actual documented amount of the borrower's initial investment in purchasing the property plus the financing of closing costs, prepaid fees, and points on the new mortgage loan (subject to the maximum LTV, CLTV, and HCLTV ratios for the cash-out transaction based on the current appraised value)."

So the amount is the lesser of the TOTAL cash outlay (purchase price + closing costs etc) or 75% of the appraised value.

Another big one is that you have to be able to document the source of the funds of the cash purchase and they have to be YOUR funds.  I had a delayed financing application fall through bc I had paid for the house out of funds from my partnership's bank account (populated by me and 2 others), but was applying in my personal name (for the better rates and terms).  I had to wait the 6mo period instead.  

Otherwise it should not be too much different from a loan to purchase.  There are lots of blog posts on here about it, this is one that lots of people find helpful: https://www.biggerpockets.com/...

Good luck!

Welcome to BP, @Tyler Muckelroy!  And congrats on getting started early thinking about investments!  

You've gotten a lot of great advice already, I'll just add that you might want to do whatever you can to start making connections in the potential place(s) you will be moving to and looking to buy.   Really try to start getting a good idea of what the market looks like and the specifics of what might make sense there, and that will help inform your later decisions.  Maybe you know folks in the area who can connect you with local investors or real estate professionals, or maybe there are even local virtual meetups happening now!  And of course there are probably plenty of locals on BP :-)

Best of luck, and I hope you enjoy your last semester at A&M in spite of the pandemic. (Class of '09 here!)

Hi @Ben Lacascio, depending on the proximity of your property to Duke or the other local universities and its suitability as a student rental, the timing of the semesters might be something to consider as well.  Certainly COVID changes things, but some students look for housing for the Spring semester beginning in January.

Hi @Clint G., you can check out this blog post for more info on using delayed financing + rehab costs on the closing statement: https://www.biggerpockets.com/...

@Kameron Yellin I own an SFR in CS with @Tom Knodt, and we are looking to grow our portfolio.  Hoping to be a part of any networking events either virtual or in-person when that becomes more realistic.  We enjoyed BRIC meetings in the past and found it unfortunate that those had been winding down / changing format even pre-COVID.