Delaying Financing Question

[Lauren Sherer]

My partner and I are planning to buy our first SFH in Memphis, TN this fall in cash utilizing the BRRRR method. We're currently looking into financing options with the goal of getting our cash back before the 6 month seasoning period. A few agents have recommended we look into delayed financing - to inflate our rehab cost to ensure we get all our money back (by wiring the amount for the rehab cost as a repair escrow and have it included in the settlement statement. Attorney to hold the cash and re-disperse it to us when we want it).

Are there any other creative ways to get our cash back ASAP to reinvest it into another investment property?

[Andrew Postell]

@Lauren Sherer you might get lots of comments and opinions on this subject.  You asked the important question though - how do I get my initial investment back out of the property?  So even if you purchased the property with a Line of Credit, you would still have to pay it back.  And if you purchased with cash and then got a line of credit on the property, well, you'll face some challenges there as well.  Here some quick pointers on what to know:

1. Buying with cash but using Fannie Mae and Freddie Mac to refinance - Fannie Mae and Freddie Mac = Government money essentially.  All sorts of rules to this one but if we play by the rules then we get the lowest rate and best terms on a loan.  You can find a full write up on buying a property with cash with this post HERE.

2. Buying with cash but using a "portfolio" loan to refinance - I'll define these loans as loans that come from the bank's own "portfolio" of money. Sometimes referred to as "commercial" loans. These loans are a lot more flexible than "conventional" loans. Bank's money = Bank's rules. If they like you, then maybe they will lend to you. But since there is a limit to how much money the bank has access to....their rate will be higher...and usually a shorter term. The most common portfolio style loan in Texas is a 20 year adjustable rate loan. These loans are easier to get but the terms are different.  You'll still want to interview several since the way one bank lends it's own money might be different than another bank's.  And yes, some still have seasoning requirements.

3. Buying with cash and then placing a "Line of Credit" (LOC) on the property - this might not be a bad idea but let's cover a few things; the concept of a Line of Credit is that I use that LOC and then pay it back. Like a giant credit card. So if I buy another property, I would then refinance THAT property and pay back the LOC. Flippers love LOCs because they use them and pay them back all the time. But just like a giant credit card LOCs have a variable rate and they even mature into something else. So a LOC is NOT designed to be a permanent financing solution.  You don't want to keep a balance on a credit card...and you don't want to keep a balance here either.  But it's still an awesome tool if you want to use it in that fashion.

Now, no matter which way you go - how do you find good lenders?  Check out this post HERE.  Hope some of this helps.  Thanks!