Story Time: What to expect from a cash refi process

[Susan Tan]

As a beginner, I successfully completed my first cash refi on a paid-off 2bed/1bath condo rental property in Cincinnati, OH. In other words, I got a lump sum cash in return for lower yearly cash flow on a rental property because a portion of rent that I get will be used to pay the new monthly mortgage. It’s a 15-year fixed rate cash refi at 4.5% interest rate. I can use the lump sum cash to buy more rental properties or rehab other rental properties in OH. After doing the math and starting this year, my yearly cash flow will decrease from $5,940/year to $1,502/year for every year because that total difference goes to pay off new mortgage, assuming 100% vacancy & the same rent every year.

Process of doing a cash refi: It is the same as getting a conventional mortgage. The bank needs all the past months' bank accounts, brokerage, and all debts to calculate the debt to net worth ratio. The bank required all the documents on the deed, the bank statement transfers that paid for the property, and even a past rental statement from the property manager. I signed many documents online about credit card opening inquiries and verify that my home address is accurate. I had to wait several weeks to get the documents from title company, insurance, and HOA on the paid off condo apartment. The process started in mid-Jan 2020 and finally concluded on April 8, 2020 when I met the notary in-person (with mask & gloves) to sign the large packet of closing documents in the backyard of the rental unit that I live in. The lump sum payment went directly into my business checking account from the title company 3 days after I signed closing docs with notary.

Learnings:

1. Get insurance on the condo apartment before doing cash refi. I forgot to get insurance on the condo when I purchased it from a turnkey company and the bank asked for the insurance policy doc as a required doc. I had to scramble to call State Farm Insurance to get H06 condo insurance in February.
2. This process takes several months: requires quick responses to various loan officers who always want more bank documents. The email threads for this process is over 80 email replies. I wish it could've gone faster but this is how financing works.
3. Budget in time for appraiser to connect with property manager. You'll never get the contact info of appraiser because that goes against bank rules, but you can group email the loan officer to the property manager in a thread to schedule time for appraiser to do an inspection & take photos of occupied property.
4. Certain documents require access to a printer so you need to handsign & scan documents & email them to bank. This was especially a downside while CA has a shelter-in-place order and I had to commute by bus 10 miles away to the empty work office where printer & scanner are located.
5. This cash refinance is possible to do even when I live over 2,000 miles away in CA while the cash refi was done on my property in Cincinnati, OH. Emails, phone calls, and electronic signature make this all possible.

[Justin V.]

@Susan Tan

The quick mortgage pay off makes sense and a 15yr fixed definitely fits the bill better than a 30.

I was actually introduced to my mortgage broker by my realtor, but I’ve seen many bigger pockets posts looking for “Great lenders in my area”. Just treat a mortgage broker like any other lender, but know they’ll sell your loan to a lesser known servicer when it’s all said and done. I made a habit of running three lenders for the same loan to see who would give me the best rate and/or cheapest closing costs. I did this about 4 times and started using my mortgage broker on the 2nd loan. She won all 3 times and gave me the least paperwork pain. I now consider her a key member of my team and just email her when I’m looking for a loan or refi.