Refinance a Cash deal?

[Michelle Holmes]

Hi there, I am a newbie in Houston and looking to do a quick buy and hold property to test the AirBNB model. I am looking at properties that just need a little lipstick and rouge and not the full blown BRRR....right now I don't have the time for the full rehab nor the time and energy to find the distressed deals. My question is this.....if I pay for a property with cash (looking under $100K) and get a good deal on one that I can put maybe $5K into updating and get an ARV of about $130,000 can I turn around and refinance that to a conventional loan once I get it cash flowing? IF so is there a holding period I have to keep it before I can get the conventional loan?

[Michael S.]

Hi Michelle,

Yes, this can be done.   

Here is my experience: The lenders that I've worked with will complete the long term financing (30 yr mortgage) even before a tenant moves in. The loan takes into consideration a percentage of the projected monthly rent. This projected monthly rent is then used to off-set my DTI (debt to income ratio) when qualifying for the new mortgage. The only holding period I experienced with this method is that the home had to be in appraisable condition, i.e. I could not have the toilet in the hallway as it was at the time of purchase :)

First have your lender lined up and know your numbers (APR, etc).You don't want to tie up all of your cash and then be stuck for months trying to find a lender to work with. When I first started out, I ran into some dead ends with lenders stating they could provide the financing but failed after a few months and a small mountain of paperwork.

With the exception of the first 2 mortgage, traditional banks would never work with me.  For mortgages 3-10, I worked with mortgage brokers who were able to think outside the box.  Mortgage rates for investments ranged from 0.5% to 1% higher than a mortgage rate for a primary residence.  

After renovations, I did the cash out. One thing that I experienced is that the specific mortgages I used would allow for the lesser of the appraised value or the purchase price. So in your example of purchasing a 100K house my cash out was 100k even though the appraised value would be 130K. I was able to complete this method many times.  My investment in each house was the repair costs and the original capital would be redeployed to the next acquisition.

Good luck!