Best strategy for financing / refinancing

[Dennis Jones]

Hello BP members,

I am a newbie and need your advice on financing / refinancing strategies.

Me and my partner have $300K cash to invest. We will invest for cash flow, buying properties that need rehab, rehab them(my partner has experience in rehabs) and than renting them.

Our market is South side of Chicago, 1-4 unit houses.

Both of us have very good credit score, but low annual income for last 3 years.

I am trying to understand what's the best way in our case to leverage our cash on hand and get best cash on cash return.

Options i see:

1. Financing the purchase & rehab through bank - since we don't have low annual income, and banks don't like to deal with rehabs this option is out.

2. Financing the purchase & rehab through landers - the terms are not optimal comparing to bank.

3. Buying properties for cash, rehabing for cash and refinancing in 6 months through the bank - seems like in our case that's the optimal strategy to leveraging on good terms.

Am i right here?

Also we were planning to form LLC, but since the loan terms for LLC are usually worse, we are thinking of keeping the properties under out names, at least for the first couple of years while the number of our properties is low. Will we be able to do bank refinancing when 50% of property is under my name, and 50% under his name?

[Brie Schmidt]

@Dennis Jones - I would buy and rehab in cash, and then put a loan on them.  Things to consider:

Lending requirements are the same if you are buying new or refinancing something you currently own, so the low income may be a problem.

• You need 2 years in your current field/job type to use the income.  So let's say you work part time as X and you get a new job as full time making more money a a new company.  As long as the job type/field is the same they will use the new income in it's entirety
• If self employed they will use the average of the most recent 2 years tax returns.  I understand by writing everything off you pay less taxes, but you also reduce your borrowing power
• If this is the best strategy for you, talk with a lender now, understand DTI and financing so that once the first one is completed and you are ready to refi, you have put yourself in the best position as far as DTI and credit to get a loan.

Residential financing terms are way better than commercial, so I understand your desire to keep it in your personal name.

• You can have up to 10 financed properties per person BUT once you get to 5 the guidelines change and your CANNOT cash out refi on anything you do not owner occupy, so you may run into problems with the BRRR strategy down the line. So be aware of this now and don't screw yourself down the road (I ran into this problem myself cause I did not know. I would have done cash out refi's on everything before closing on #5 if I knew better and now I have tons of equity I can't touch)
• Even though you can't do a LLC on title, still write up something legal with your partner to cover both of you and outline everything. Better be safe than sorry