How do I get my money out?

Question

Hi Everyone, I have 3 properties and all my cash is tied up in them. I am wondering what the best way to get my cash out so that I can buy more properties. I do not have mortgages on any of them.

House 1: I purchased a lot, added electric, septic and well then purchased a manufactured home. Currently waiting on it to arrive- ETA is April. Lets say value is $200,000. This will be my primary residence for a couple years after its ready to move in.

House 2: Investment property just purchased. We will be living in this house until house 1 is ready, then renting. Value: $130,000

House 3: My "summer home" and also my childhood home that I was able to purchase from the bank super cheap when my dad had to be moved into a home and was upside down in a reverse mortgage. Value $450,000. This house is 12 hours away from house 1 and 2.

So all 3 were paid in cash. What is the best way to get the cash out?

1. Not sure how this works as its a manufactured home and land was separate.

2. Delayed financing on the investment property basically doing a brrrr on this?

3. HELOC? Is this an option for second homes?

Thanks :)

Jason Wray · Answer

Chrissy,

Easy, just do a cash out refinance since you have no mortgage your LTV will be low and you will get a good rate.  The rate on the cash out refinance will be much lower than a Heloc rate and since it will be based off of a 30 year amortization the payment will be much lower.

Delayed financing offers 80% LTV cash out if you have owned it for less than 6 months - But, you cannot use a new appraisal.  Delayed financing uses the purchase price plus any renovation receipts and will use 80% of that number.  If you owned them for 6 months or more you can use a new appraisal and get more out.

Devin Peterson · Answer

If you run into DTI issues with so many cash out refis, maybe look into a DSCR cash out for the two properties that aren’t the manufactured home. If they are being treated as rentals this well be the easiest way to access equity you have. Feel free to connect and ping for more questions and details!

Jason Wray · Answer

Yes you can do a cash out refinance on any home.

David M. · Answer

@Chrissy Smyth

for #2, a residential loan will have a 12mo occupation covenant.  If you are within 6mo and with rates dropping, I'd look very hard at getting the delayed financing.  In this environment, its a very powerful option that isn't normally available to "investors."

Just be careful about how small of a loan you are looking for.  Pre-covid I think the min was $50k, and i thought it was raised to $75k.  One way to think about it is that $50k starts becoming an auto loan....

I make my own spreadsheets to calculate what I want and what I need.  Templates always calculate what somebody else thinks you need, and usually fixed to those calcs.  you make your own and you can customize.  Its good that you can afford these properties, but the lender will need to agree.  For residential loans, you'll need to be able to calc your overall DTI, and your future DTI so that you can get the additional financing.  the actual calcs themselves is, of coruse, a different topic.

Hope that helps.  Good luck.

Glen Wiley · Answer

I keep a spreadsheet with the amortization of each property and projected rents over the life of the loan using formulas for annual increases in insurance, property tax, operating expenses like maintenance, market value through appreciation and rent. This gives me a picture of my portfolio at any point in the future - it will be inaccurate but good enough to help inform future outcomes. You should have this already, without it you really don't understand the future returns of your properties - make the workbook regardless of what you do.

A separate sheet for each house shows amortization of a cash out refinance with the same details. I can then plug in a start year, a projected interest rate and LTV. This tells me what the likely cash flow is likely to be.

I can then compare the performance of the existing houses post-refinance and add in a sheet for a  projected purchase with the same details as the others. With that in hand I compare the total cash flow and appreciation for the entire portfolio and can see clearly whether I will be making more money post-refi.

Excel and Apple Numbers offer functions (PPMT, IPMT) to generate principal and interest for an specific payment period in the life of a loan. This is really helpful for creating amortization projections.

Glen Wiley · Answer

Cash out refinance is the answer. You will be unhappy with interest expense but the way to address that is to look at total portfolio performance NOT individual properties. When you factor in all of your properties (including the prospective new purchases) you want you return on investment to exceed the current return. This target is easier to reach than you think in this scenario.

Chrissy Smyth · Answer

Thanks everyone!!!

Chrissy Smyth · Answer

Did you create the spreadsheet yourself or is there a template somewhere? I am good with excel and google sheets.

Chrissy Smyth · Answer

Thanks!

House 1 will be attached to the ground.

House 2- if I got an owner occupied loan will I need to stay there 12 months like a house hack or is that only for FHA? We only plan to stay there until May or June when house 1 is ready.

House 3- Even if I get only 50,000 out of it so that I don't have to worry about supporting it at a higher number then I am good with that.

What is the best way to run my numbers? This is all new to me!

Thanks

How do I get my money out?

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