Appraisals, Cash outs, and Refinances

[Dustin Morris]

Wanted to get some insight on people's experience with cash out and refinances for rental properties. I currently own 3 properties soon to be 4 next week and I'm trying to look at some of the best ways to cash out on these properties. One of the properties I have owned for a year and was told by my current bank that the cash flow was not good enough to cash out??? The next one I purchased for 15K below tax assessment/25K below AMV and put 5K in repairs in. The third on I purchased for 18K below tax assessment/37K below AMV and will put 12K in repairs. The final property I'm getting ready to close on next week in all cash on Tuesday. This property was purchased for 17K below tax assessment/34K below AMV and will require 5K in repairs. 

What is the best way to maximize your cash out on these types of properties (all are SFH)? Is the 6 month seasoning period required in order to do the full cash out or can I approach the banks about it after doing a substantial amount of repairs. All of these properties are appraising for pretty much right at the purchase price when I take out the initial loan even thought you can see that is not in fact the actual value...no appraisers want to help with that instant equity I guess.

Also on the all cash purchase - what is the best way to maximize the loan value I will get with a local bank? I'm going to go ahead and do repairs in order to hopefully bundle those into the value, but wanted to make sure they were not also going to give a bogus appraisal which was essentially what I paid for it

Thanks for your help! Any tips or tricks would be greatly appreciated 

[Jon Holdman]

First, tax assessments have only a loose relationship to market value.  They're not useful in this context.

IDK what you mean by "AMV".  Actual Market Value?  What's the value of these properties?  $25K differences will be lost in the noise for a $500K property.  They're significant for a $100K property.  Without knowing the values you're talking about its hard to know if these $25K and $37K differences are significant or not.

Have a look at this . It shows the LTVs in various situations. For a cash out refi on an investment property you are looking at a maximum LTV of 75%. So, if you mean you paid $75K for a property that's worth $100K, put in $5K in repairs, then you should be able to get a cash out refi for $75K. There will be some costs, so you won't get back your entire initial investment. $5K in repairs seems unlikely to significantly increase the value.

The appraisal for a purchase money loan is really about assuring the lender there is enough value to justify your loan.  Its a better value than the tax assessment, but still just one opinion.  That said, be careful when you say "even thought you can see that is not in fact the actual value".  When you purchase a house, the price you pay very much IS the value of that property.  By making that purchase you are putting a stake in the ground for the value of the property.  There can be exceptions, but these are more the case when you're buying a really junky property and making significant improvements.