Buying Property with Cash with Intention to Refi

[David S.]

Hey all,
I am working on my first deal and this question keeps nagging me. In some situations I have the ability to pay cash for a property - either with partners, HML or personal funds. Ultimately, I obviously want to be leveraged and not employ a lot of cash. Assuming the property is in rentable condition sometime after I buy it how much resitance would I encounter to refi and get the cash out ("cash-out REFI?"). I don't want to pay cash for something and then have a big problem getting it out of the property. Please clarify for the newbie. Thanks!

[Bill Gulley]

Hi David, the key to RE is financing it, unless you print your own money!

Cash out refis on non-owner occupied properties is like looking for hens teeth.

For new investors, or small investors, it's what I call hitting the wall. Initially, you will only be able to leverage your purchases at 70/75% and you may be limited to the number of properties you can have. You may want to take advantage of the purchase money loans available for small investors at first. While these limitations change, cashing out has always been a problem except for renovations to that property.

In my opinion, it is imparitive that new investors seek properties where they can use seller financing and get as many properties as they can while limiting the amounts they have of their own money. That does not mean you don't need money in a deal. But, if you need to use your money to make the deal, do it. You may also find seconds from non-conventional lenders. Later on, you can use the equity from one property, as a second with a private investor and move that money to a new property. After one year, both loans are seasoned and now you can refinance the property, depending on the appriased value, to payoff the second. Setting up properties so they can be rolled over in time can help you manage the extent of leverage of your portfolio.

When you get to the point of having a larger portfolio, you can move into commercial financing alternatives to get over that wall. Make sure as you finance properties that you keep an income at 125% more than all expenses (including vacancies). This should keep you in good shape to qualify for future loans. Good Luck, Bill