Seasoning Period

[Rachel Pivonka]

We are working on buying our first rental property using the BRRR (buy,rehab,refinance,rent) in Knoxville TN. I am concerned about this "seasoning period" some people have mentioned where a bank will not finance the property if it has been bought or financed in the last year. We want to be able to do a cash out refinance soon so that we can do another deal once we get the property rented.

My questions is.... will it be easier to avoid a seasoning period for the cash out refinance if we initially purchase with cash (from our HELOC and 401k or hard money lender if we go that route) vs just buying the property with a bank mortgage and 20% down and refinance as soon as we fix it up ? This is assuming the house is in good enough shape for the bank to finance initially and that we are all in for no more than 75% of the ARV.

Any thoughts on this question or how to avoid the seasoning? Hope that all makes sense? Thanks!!

[Ryan Johnston]

As I understand it, the delayed financing requires that the property be purchased for cash, and that it's ONLY your cash. You'll have to show proof of where the funds came from. In addition, they'll lend on 70% of your PURCHASE price, so if you bought distressed and then rehabbed to increase the value, you won't be able to realize any of that forced equity. You'll be limited to a loan based on your cost to purchase. Frankly, in REI, I don't see much use for it. If you weren't going to be rehabbing, then you might as well just go traditional from the get-go. If you're rehabbing, then you probably want your equity back and will either wait out seasoning or go with a local bank who's not selling their loans to Fannie/Freddie.