The Delayed Financing Strategy

[Jordan Murrell]

We have most recently got a property under contract in the Memphis midtown area.

It is 2 duplexes parceled on the same lot. We are looking to purchase all cash for this property as the market is extremely hot and financed offers sometimes just aren't cutting it.

I was listening to the BiggerPockets Real Estate show quite some time ago and a guest on the show spoke about the delayed financing strategy that she was using to purchase her properties. Having an all cash offer is a much stronger offer and sometimes allows you to offer less as there is no financing contingency. With that said, we have got the property under contract and used an all cash offer.

We are looking to use the delayed finance strategy to refi out our cash and have a mortgage on the property. Delayed financing is a way of purchasing a home in which you pay cash up front, then almost immediately or shortly thereafter obtain a cash out refinance to mortgage the property, which returns a big chunk of your money to you. Depending on the bank 70-75% refinanced out.

Any suggestions on which bank or credit unions offer this service? Have you utilized this strategy before? 

We are going to continue to call lenders to make sure we are getting the best rates.

All input and suggestions would be great.

[Tucker Cummings]

Originally posted by @Jordan Murrell:

Originally posted by @Jaron Walling:

The better question is why trap 25% of your money in the property when you could find a better deal? Distressed off market or wholesaler deals could give you that. An all CASH offer should come with built in equity, value add, or something with great returns. 

I'm not knocking delayed financing but I don't see the point of paying at or near market value. Check out the "1950s Texas home walkthrough" video on the BP channel. The property came from a personal referral aka off market. 

Jaron, 

Thank you for your message. We wanted to get this property under contract quickly as there is a value add component as well. With there being tenants currently in 3 of the 4 units we aren't able to get in and rehab the whole project at once. We would look to own the property then do the value add component once the leases are up to raise the rents. Leaving 25% of our money in this particular deal is not very worrisome as the cashflow is very good and potential cash flow after the rehab will be even better. 

I will most definitely check out 1950's Texas home Walkthrough. 

Thank you again!

 I use delayed financing and it's awesome. Love it, recommend it, think everyone should do it. There are 2 ways you can pull this off.

1) Cash Purchase the property to get under contract at lower value, then finance out what you just purchased it for. You should be able to get those funds back quickly, and you can use the same funds that you purchased the property with to repair the property. Then you do your typical 6 months seasoning cash out refinance after the value add. Since you mentioned 3 out of 4 units rented, it sounds like this is what you're going to end up doing. 

2) Get a quote from your contractor during the due diligence process, submit that to your closing attorney and have them put it on the HUD statement / closing disclosure. The repair funds will be held in escrow after closing and they will be disbursed to your contractor as needed as repairs are completed. The reason you want to do this is that it allows you to pull all your money out (purchase + repairs) immediately after the rehab is done. Total timeline is usually 8-12 weeks vs. 6 months on the first method.

All that being said, I don't know a lender in your area, but a key question should be that you should ask them "do you refinance on the purchase price or the total of the HUD statement?" then follow up and clarify "if I put my repairs on the HUD statement prior to closing, would you refinance on the sum of the repairs and purchase price?" It's the same question, just worded differently and might help qualify / disqualify the lender.

Hope that tidbit helps a little bit. Good luck!