Angel Investors - the refinancing process

[Phoebe Bright]

Hi there, 

I am looking to buy my first doer-uper property to rent out and am looking at working with an angel investor to help fund this. 

I am getting a bit confused as to how to pay the angel investor back in one lump sum (rather than asa monthly fee). 

I was told i could buy the property, do it up refinance and then pay back the investor and the fee's /money i had put into the house in one go. Then i would just have to get tenants in to cover the mortgage repayments and hopefully some extra = positive cash flow. 

I was wondering if someone could please help explain how the refinancing / remortgaging part works and how soon after buying the property you could do this?

Thanks!

[Jon Holdman]

The term folks usually use in this context is "private investor" rather than "angel investor". This process is called a BRRR - buy, rehab, rent, refi. Sometimes with one more R for repeat.

When you buy, your private lender will loan you money with the property as security.  That means there will be a promissory note and a deed of trust (or mortgage in some states) between you and your lender.  The promissory note outlines the terms of the loan.  The deed of trust or mortgage give the lender a security interest in the property and is recorded.  The security interest gives them the right to foreclose if you don't repay the loan.

After you do the fixup and (typically) get the place rented, then you get a conventional, long-term loan.  When you do that, the title company that is handling the refi will request a payoff amount from your private lender.  Some of the proceeds of the refi loan will go to pay off the private lender.  They will record a "release of lien" or some such document that cancels out the deed of trust you gave them when you first bought the place.

You should find the refi lender before you get started and be sure you understand their terms.  Including how long you will need to wait before you can refi using a new appraisal.  You want to use a new appraisal so you can take advantage of the increased value from your rehab work.