Cash Purchase Followed By Mortgage Acquisition

[Eric Johnson]

Greetings BP members,

Do you think it's prudent to purchase a property with cash, then, subsequently turn around and get a mortgage on the property to recoup your cash expenditure?

Thanks in advance,

Eric

[Matt Devincenzo]

I'll use some numbers since that might help paint the picture. This is close to one I'm in the middle of now and will cash out in Nov, I'm going to round some numbers though for easy math.

Purchase price was $54K rehab ran me about $9K total, so all in for $63K. Now the rental rate and hold time ect play a role other parts of my expected returns ect, but for the cash out/LTV portion they don't have anything to do with it. So I'll get a cashout in a few months and the home should absolutely appraise for about $75K....maybe a little more...but I'm staying conservative at $75K. So when the lender is looking to see how much the loan amount can be they'll use 75% of the appraised value, which is a loan amount of $56K. So that means I'll get all but about $7K back after fees and origination charges ect.

So while to the bank they have $18K in equity securing their loan (which they do since I don't want to lose the equity gain I received), I actually only have about $7K cash tied up in it. So for me I'm into the property for about 10% LTV.