Should I Refi to Finance Next Deal?

[Andrew Schlessinger]

So...

I bought my first property in Dec 2014 and finished the rehab in February.  Spent all of March working to get the Section 8 inspector in (failed the first time around), and am finishing up the "fix" items so I can pass the second inspection.  I have a renter lined up (clearly) and will likely have them in within the next month.  Not a bad start, had some great mentors (the best!).  Litterally couldn't have done it without them.

Now that this project is making its way into the "landlord" phase I'm thinking of doing a refi to fund my next deal.  I think it makes for a good strategy (buy, rehab, rent, refi), but would like some advice from seasoned investors.

[Jeremiah B.]

Grats on your first deal!  Sounds like a good one!

It's a good strategy - but be sure you talk with a lender early in the process as there are several pitfalls to watch out for - and your options will often depend on how you purchased the first place.

Generally speaking, I understand that there are two options (verify the specifics with your lender):

1- Traditional cash out refi.  This is only an option for investor with 4 or fewer mortgages.  If you hold a house for six months, you can have the house appraised, and then pull out something like 75% of the new value. 

2 - Delayed financing.  This is a special type of cash-out refi that can be used for properties 5-10, and MUST be done within 6 months of purchasing the house.  The house is appraised and you can finance something like 70% of the appraised value.  You must have paid cash for this to be an option.  It is also quite rare to find a lender who can do this, but they do exist (PM me if you need someone).  This is the strategy I've used a few times with moderate (it lets me buy in cash which is nice, the I don't get as much cash back as I think I should).

In either option, the appraisals often come back very conservative - and in my personal experience - have been ~ 5%-15% below actual market.   Both options also cost money, so be sure that the money is worth the cost.

Happy hunting.