How do you approach lenders about cash out refi?

[Robert Keller]

Hey everyone. First time posting. I've been pouring through the BP podcasts and have heard almost all of them. I had a question that had probably already been asked, but I haven't had time to sit down in front of the computer to research heavily, yet. So, to my question: is there better way to approach smaller banks and lenders during a cash out refinance. Right now my wife and have been analyzing deals using a BRRRR strategy. From what I understand, I should be looking for the right underwriter. How will that person identify himself as the right lender? Further, I've heard it takes upwards of a year to season a rental rehab: are there any tips anyone has to shorten this time? Thanks for the help! Robert

[Michael Noto]

@Robert Keller When you are getting started with the BRRRR strategy it is very important to have the refi part of the equation relatively lined up before purchasing. You are very smart to be looking into that aspect of the strategy before purchasing, believe it or not a lot of people overlook that.

When we started with this strategy here in CT we started by calling upwards of 40-50 banks throughout the state to see if we could find a lender that was open minded enough to cash out refinance an investment property within 6 months. What you will find out by calling around is the national banks and regional banks are a waste of time to even call if you are looking to cash out within 6 months. 

What you want to ask when you call the bank is to speak with the commercial lending officer or anyone that deals with the banks portfolio loans. Then from there outline what you are looking for and you will know right away if they are open to doing these types of loans. Typically with the banks I have dealt with, the commercial/portfolio loan department at a bank is much more likely to "speak the language" of an investor more than a typical residential loan officer. Not always the case, but most of the time. 

Once you get a bank that is willing to entertain these types of loans set up an in person meeting to get specifics on the programs they offer, but be prepared to pay more in closing costs, rates, fees, and be prepared to put at least 25% down. We actually had to put 30% down for our first one with a local bank here in Connecticut. The trade off of them taking the "risk" to refinance you within 6 months is the rates, terms, etc. will not be as favorable as a traditional lender. This is the aspect where I find most newer investors get scared off. They don't realize the value in being able to recycle your money quicker and they get caught up in "my rate is higher, my downpayment is more, and my term is shorter." Well of course it is, they are offering a product you can't find many places so you are going to have to pay a little more for it.

If the numbers work, you are able to move your money quicker to the next project, and you are getting most of your cash out, who cares? That was always my thinking anyway. Getting caught up in how much other people are making in this business will drive you nuts.

Always have in the back of your mind that in the end when all is set and done you will have a property that is completely rehabbed, rented out, and you will have minimal cash into it out of pocket once the refi is done. This will help you get through the frustrating times that you will definitely experience executing this strategy. You are choosing the road less traveled and there are challenges as a result.