Delayed Financing question

[David A Slocum]

I'm a new BRRRR investor looking for my first single-family deal and I just finished David Green's book on the BRRRR strategy. I've been listening to BP podcasts and came across two podcasts that mention delayed financing as a strategy to avoid the typical 6-month waiting period. I would love to hear from those who have used this financing strategy. Specifically, I'm interested in how the timeline works. From what I understand, you put all of your rehab costs on the HUD-1 at your first closing and you can either get 75% LTV on the appraised value (ARV), or 100% of the purchase price (plus rehab costs), whichever is less. If this is correct, this means you would have to rehab the property and get an ARV appraisal without closing on the property. How is that possible? I would love to hear from anyone who has experience with this and could provide a timeline of the process.

[Zack Karp]

@Mark F. thanks for the tag

@David A Slocum there are actually 2 methods, one using Delayed Financing, and one without.  It appears that you and others here are mixing them together.  With both strategies, you do the work after you close, and before you refi.

Delayed Financing requires you to pay cash for the property (no lien), and then you can cash out refinance without seasoning, meaning you don't have to wait the 6 months, and you can pull your cash back out.  However your refi loan amount cannot exceed the lesser of either the acquisition price of the property (notice that I did not say purchase price), or the program max LTV, whichever is less (the max LTV depends on whether it's a primary residence or investment property, and whether it's a 1-unit or 2-4 unit property). The acquisition price definition is where next-level loan officers get to play. Hypothetically, let's say you had a $50K rehab cost to ABC Builders LLC on your settlement statement at closing, in addition to your purchase price, then that is part of your acquisition price.

So let's say you are buying a SFD investment property for $100K and the rehab is going to cost $50K and the ARV will be $200K. With traditional Delayed financing, your new loan amount can only be $100K (plus closing costs), because that was your purchase price. However, if you put that $50K rehab as a line item on your purchase settlement statement, then your refi loan amount can be $150K and you can pull your rehab funds back out.

That's the gist of it, there are A LOT more moving parts.  Again, this is not something that an order-taking LO from an online lender or bank is going to be able to help you with.  You need someone with experience, creative, and investor-friendly.

The 2nd method is similar, but instead of paying cash for the property with no lien, this is with using a non-traditional loan where there is going to be a lien, like a private money loan, rehab loan, fix and flip loan, hard money loan, (whatever you want to call it), and the rehab funds are inside that loan. Then you can do a rate/term refi, and there is no 6 month seasoning. If you are using a private lender, Uncle Bob, etc, this can be a great strategy. This does NOT work with a Conventional/FHA/VA loan to purchase the property, unless it's a rehab loan like a 203K. This method only works with a loan where the rehab funds are included in the loan amount.

Both methods are dependent on knowing the ARV to help structure these deals properly. Obviously this takes some foresight, and perhaps the assistance of a no-BS realtor. Then you close, do your rehab, then refi. It can be that simple, with the right team.

Hope that helps!  Like I said, there is way more to the planning and execution of this.  Your first step is working with the right loan officer to help map it out and make sure that you don't get stuck.  Best of luck!