100k for rentals

[Alex Lane]

hello bp! 

Im currently brain storming the best ways to leverage 100k towards rental properties.. If I used that cash towards down payments for multiple properties would I need to buy homes under market value in order to refinance to get my 20% DP back? I know buying under market value is always the goal but there are turn key retail priced homes in my area that are still cash flowing. If I took out a conventional loan and put 20k down on a property with an equal purchase and appraisal price can I refinance shortly to get my 20k back? 

[Sam LLoyd]

No. Unless your market is going up quickly. The refi price is going to be based upon your purchase appraisal or a new appraisal... and unless the appraised value goes up that 20%, you won't be able to keep the same LTV while pulling money out. In fact, it would have to go up a little more depending on how much principal you've put in because the mortgage origination will probably have fees rolled into the new loan balance.

For brain storming, I would start by looking for two things. First, you want a property that has decent returns... which it sounds like you do. Second, is you want to set a goal for your cash on cash returns. In my market, I'm shooting for 12% CoC, which is very very hard to find... and I only come close if I manage myself. So, set a CoC goal, and then go buy a good property that fits.

To get your money back out, here are the 2 ways I've done it.  The first one is time.  I put 10k down on a house 10 years ago.  Last year I pulled out about 32k as well as lowering the payment due to better interest rates and loan balance.  The second one is by forcing appreciation.  If you find an older 3 bd 2ba house with an office, and can tear down a walls and remodel into a 3bd 2ba with a swanky master suite, you might be able to force your value up 20% as well as have a more desirable property... this will take more money up front than the 20%, unless you have big credit cards and are willing to use them.... keep in mind, refinancing with a bank can take months.

I hope these thoughts help