All Forum Posts by: Gary Parilis

@Eddie Gonnella

https://mymortgageinsider.com/...

"Keep this in mind: a buyer must use proceeds from the new cash-out loan to pay off or pay down the HELOC or other loan used to buy the home."

@Brit F. Thanks! A disadvantage to using a mortgage the way you describe is the closing costs, which need to be compared to the cost of hard or private money. Also, you lose the negotiation advantage of a cash offer. Additionally, a lot of BRRRRs would be purchased below the minimum amount for a mortgage.

Seeking confirmation, urgently:

Because I am days away from closing on my refi, I need to decide right away whether to stop that train, in order to go for another HELOC instead. Has anyone actually purchased with HELOC funds and obtained a mortgage soon after, using the delayed financing exception? And if so, can you confirm that mortgage lender paid directly to the HELOC, then you still had full access to the HELOC with no consequences?

I want to be certain there are no snags I'm not considering, partly because my lender for the refi has been terrific (not my first loan with him) and I don't want to back out unless I really need to... Which appears to be the case.

@Annchen Knodt Thank you! I will check those resources out!

@Brit F. My existing HELOC is from an investment property. I used Fulton Bank. I also spoke with TD Bank and they can do that also.

I'm confused about your last paragraph, about using a cash-out refi instead of private/hard money. My point about that was to avoid using a cash-out refi, which would have to be paid back from the new loan. Can you elaborate?

Thanks for your thoughtful responses!

I'm not worried about the market falling. As long as rents don't decline, you still have the same cash flow. You just ride it out til the market comes back, and you still gain equity as your mortgage is paid down. I definitely would not wait for a downturn. That could take years and you'd be delaying your plan. Also, the sooner you start your house-hack, the sooner the required 2 years living in the multi (since you're doing FHA) will end, freeing you to move on to the next one at a lower purchase price when the market declines. :-)

BTW, if you are really concerned about a downturn, then flipping is the wrong thing to do, unless the numbers work for rental as a plan B if you end up not being able to sell it at a profit.

The only regrets I have are not starting earlier and not buying more aggressively.

@Brit F. Thank you. Yes, I understand it is an exception to the 6-month seasoning requirement. And, yeah, I know it means I cannot borrow more than the purchase price. That makes it a poor solution for a BRRRR with extensive rehab. But otherwise, it's a big help, allowing me to do more BRRRRs per year.

About the HELOC... Is the following correct if I use the HELOC to buy the property initially?

1. When I get a loan soon after the purchase & rehab, the bank will probably want (or need) to send the funds directly to the HELOC, and...

2. No big deal, because it's a revolving line of credit, so I still have access the same funds.

If #2 is true, this restriction is no problem for me at all. And it also means I perhaps should not go though the refi I'm schedule to close this week, and get another HELOC instead.

What I meant about a personal loan or hard money was that I could use that on a short term basis to purchase the property, and then pay it back after doing the rehab and getting my mortgage. If I don't get all the cash out, I would use the funds I'd pulled out of my other properties to pay back the balance of that short term loan. That way, I can use the delayed financing exception and the purchase wasn't funded with capital from another property's equity. Is that legitimate?

I have pulled capital out of my existing properties to fund new deals. I have enough to cover cash purchase + rehab for a typical deal, and plan to recycle the funds for multiple deals. My objective it to BRRRR with cash up front and then to get a loan immediately after rehabbing and getting a tenant, to then proceed with the next property.

The "delayed financing" rule allows you to avoid the usual 6-month seasoning period before doing the cash-out loan. But here's the rub: It seems if the purchase was funded with assets drawn from equity on another property, the proceeds from the new loan must be used to repay the original loan. That defeats the purpose! Have you dealt with this?

A couple of twists here... 

1. My funds are coming from two places: a HELOC on one property and a refi that's about to close from another. It seems to me, since the HELOC is a revolving credit line, I could pay it back and still have immediate access to the credit. Am I missing anything here? I wonder if I should put the brakes on my refi and do an additional HELOC instead?

2. Another possibility is to borrow from a private or hard money lender to make the purchase, and then use my equity funds to pay back whatever isn't covered by the new mortgage.

Opinions or advice?

Also... The last two Rs of BRRRR are Refi + Repeat. Doesn't this restriction make that nearly impossible without a 6-month wait?

And if the maximum loan is the purchase price, this is especially problematic for many BRRRRs, because often the purchase price is below the minimum they will lend.

Oh, I see. My mistake. Thanks for the clarification. Of course in a BRRRR we'd want to get as much out as possible, including the rehab costs.