Hello, I have seen a lot of people talk about doing a cash out refinance after a rehab and season period. What I'm wondering is if I buy a property for all cash (to move faster and make stronger offer) that does not need rehab can I turn around and get financing from the bank once I own the property outright and get 70% of the appraised value of the home back in cash? The main goal here would be to leverage my money instead of keeping it all in 1 property.
Yes, you can mortgage the property any time. I'll add that if you make an "all cash" offer to a seller, you can still finance the deal if there's time to get the mortgage lined up. The seller still receives "cash" on closing".
That is a super interesting question. I would assume you can. I am going to be starting my investing journey in 2020 once I finish building my stable foundation and that was my hope; to buy a handful of properties with cash, let them cash flow for a while and then utilize their equity to cash flow a larger property. Hopefully someone with experience in this situation can shed some light on this for us.
I don't see why you couldn't. The challenge will be buying a property for 70% of ARV. Usually the rehab part is necessary because most properties that sellers will part with under market value need work. If you know how to find turnkey properties at 70% of ARV I'd love to know your secret :)
@Michelle St. Claire is there a reason I must get it for 70% arv? I understand that’s the strategy for brrrr and to be in the property for $0. But in my situation I’m talking about being ok leaving 30% in the property.
Yes, you can mortgage the property any time. I'll add that if you make an "all cash" offer to a seller, you can still finance the deal if there's time to get the mortgage lined up. The seller still receives "cash" on closing".
Hello, I have seen a lot of people talk about doing a cash out refinance after a rehab and season period. What I'm wondering is if I buy a property for all cash (to move faster and make stronger offer) that does not need rehab can I turn around and get financing from the bank once I own the property outright and get 70% of the appraised value of the home back in cash? The main goal here would be to leverage my money instead of keeping it all in 1 property.
Thanks
This is possible, but it depends. There are different types of lenders.
You could look into Delayed financing, kind of like a refi, but usually based on the purchase price not appraised value.
1. LTV. A rate and term refi often has greater ltv and sometimes less seasoning than a cash out refi. Make sure when shop lenders you are looking at a cash out not a rate and term.
2. Seasoning. Many banks want your name on the title for a certain period of time, 6 months for example. You want a bank that can refi right away.
3. Another factor is will you want to use rental income to help qualify for a loan? Or are you in a position to be able to use w2 income to qualify? How soon can rental income be used? Different lenders have differing criteria.
@Seth Ferguson made a great post. If you are using a cash offer to strengthen your offer you are essentially saying your offer is not contingent on financing. That doesn't mean you can't establish financing prior to closing. It just means that if you can not line up financing prior to close you will bring cash to closing to complete the deal. It isn't cash, it is just not contingent on financing. To a seller that is as good as cash. To a buyer that provides you with options.
The first thing you should do is establish or strengthen a relationship with a lender. I have submitted multiple offers waiving the financing contingency (essentially a cash offer) with a 30 day close because I know my lender can make that happen. A seller countered with a 45 day close, I accepted, and had financing lined up prior to closing. Obviously, if your lender misses the date you need to have the cash fund accessible on your closing date.
It is a really good strategy in competitive markets. If you have a great relationship with a lender this is one of the best ways to leverage that. I am in the process of refinancing a BRRRR I paid cash for. If you have more follow up questions I am happy to share my experiences.
Yes, it's possible. Now is it likely that you'll get enough of your money out to make this strategy profitable and/or repeatable to a significant degree, if that's what you're looking for? No, not if current market conditions in your area are anything like they are in my area.
BRRRR strategies have a natural sweet spot, especially in a sellers market where appraisals are conservative and favor the bank.
1. Cash gives you the largest advantage buying properties that the seller understands will not qualify for traditional financing and/or that need to be sold very quickly. Simple logic dictates that these properties will not be in quality condition when you buy if you're doing it right.
2. The property must be in an area that is experiencing at least SOME steady appreciation over a period of time -- the amount isn't particularly important, just that there is a positive, easily-documented-through-comps, widely-observable phenomenon happening that appraisers can hang their shingle on.
3. You must be willing to hold for a period well over a certain minimum such as six months. In my area, there's no such thing as a minimally-competent appraiser who won't see through public records that you're refinancing after a minimal hold period, won't check what you bought it for, and won't get worried about giving a real estate slickster building a sham empire a higher appraisal than the property deserves. Banks have long memories when it comes to rehiring appraisers who make decisions that don't end up well for them, and the appraiser gets no forum or process to argue the merits or faults of a particular decision.
4. You have to put significant, obvious money into the place before the appraisal. It had better look new, fresh, nice, and not cheap. An appraiser is in dozens of houses of all income levels, year after year. All the standard tricks to make a property look nice without spending the bucks on it simply aren't going to yield the best returns to those eyes judging your work -- this is not a retail buyer.
Could you get lucky outside the sweet spot? Sure. Once, even twice, Dame Fortuna will have her fun. But sooner or later, you won't.
@Robert Dabicci You can buy market value and leave 30% in the deal. However this is not scalable. For example, if you have $100k and purchase a property for that amount at market value then you will pull out $70k. If you use that to purchase your next property at $70k you can pull out $49k. You'll quickly get to a point where the money you pull out is not enough to buy another property (if your strategy is to own 3 properties only then this could work for you as 90% of your original 100% will be tied up equity that you can't touch unless your properties appreciate significantly). The beauty of the BRRRR - if done as prescribed - is that you can pull out of all your money to rinse and repeat infinitely. It is scalable.