Investor · Corona, CA · Member since 2016 · 14 posts · 7 votes
I have purchased my third rental using cash for the purchase and repairs. As an example if the purchase price of the home was $30,000 and repairs were $5000. What would be my be course of action to get that entire $35,000 back? I understand that the appraisal value after repairs will dictate how much cash I could pull but for this example let's say it appraises for $65,000. My first rental I've owned for 9 years and my second for 3 years. I'm not sure if that has any barring on the issue but wanted to give you as much info as I can. Also, I know my debt to income ratio is tight and may become a factor. Unless there is some way to side step that factor all together. Also, waiting the 6 month seasoning period would not be an issue.
Lender · Bellevue WA & Orange County, CA · Member since 2013 · 2k+ posts · 1k+ votes
10y
yes all factors of a normal full doc conventions loan comes into play even reserves, income, credit, appraisal value, number of financed properties, etc.
Thank you @Albert Bui. Will my debt to income ratio come into play? As I stated I know it is tight.
Yes, however, there are many refi programs that as long as the currently owned rentals have also been seasoned 6 months, and cash flow positive, you can include that cash flow in your income.
(You will notice that I was surprised to read about the immediately allowable re-appraisal too)!
I believe with delayed financing you can only finance the purchase price, not the cost of repairs. As others have mentioned, seasoning is usually required to finance based on ARV rather than purchase price.
So for the OP, you could finance 30k right away with delayed financing but financing the full 35k would count as a "cash out" refinancing.
Investor · Cleveland, OH · Member since 2015 · 6k+ posts · 2k+ votes
10y
@Frank B., yep, I agree that in that other thread, the reason the OP got all their money back (less closing costs) was because it didn't need any repairs. That's a suggestion for others considering paying all cash:- buy ones that are rent-ready (but still aim for 30% off appraisal value)! Cheers...
Lender · Bellevue WA & Orange County, CA · Member since 2013 · 2k+ posts · 1k+ votes
10y
that is true the key difference is the restriction of getting just your acquisition cost back (purchase + closing costs) which is from a delayed financing exception or waiting 6 months then cashing out through a refinance with less restrictions ((up to 75% on 1 unit SFR if you have up to 6 financed properties).
Investor · Corona, CA · Member since 2016 · 14 posts · 7 votes
10y
Thanks to everyone for the great information and links. I do have positive cash flow from the other properties but do want to recoup the repair costs so I'll wait the 6 months and see how it goes.
Visalia-Fresno, CA · Member since 2009 · 1k+ posts · 863 votes
10y
This one should be easy to refinance and cash out. I believe after #4 the process of refinancing gets more difficult unless you go to a portfolio lender which I did. I was able to cash out refinance over and over about a dozen properties with a local lender.
Talk to lenders is like asking a lady out for dinner. They will all give you a different answer.
Average people are scared of debt. When we respect and master the mechanics of debt we will become very wealhy.
Investor · Corona, CA · Member since 2016 · 14 posts · 7 votes
10y
Thank you @Franklin Romine - I hope it will be an easy one.....but does that really exist when dealing with a lender? An easy transaction that is! I always feel I'm prepared and then they ask for more and more and more.....
I have my other properties financed through Bank of America and I am wondering if there are other places I could be or should be looking. Sometimes when I ask questions at the bank, it seems as though I know more about this process than they do.
You might have a hurdle because the amount you are financing isn't very much. On my lower valued properties I have pulled a equity line of credit. Example.... Condo Valued at $40K, I got a $27K line, House 1/1 $55K value I got a 35K line of credit. I use a local bank near my in Porterville, Bank of the Sierra, and they will give me 70%LTV, 7% interest only. I bank with them and have a commercial loan so it has been relatively east getting 1/2 dozen lines on small properties.
I use the word ''easy" loosely. I tell myself everything is easy. I won't disagree this does take a lot of time, energy, paper, emails, phone calls, back and forth, forth and back, up and down... yes we are on roller coaster ride to create bank financing, to buy and sell real estate, to flip property dealing with contractors, dealing with tenants and crazy people, managing a family, managinh ourselves and much more... but if creating wealth and cash flow was really really easy... everything would be doing. it.
Rental Property Investor · Savage, MN · Member since 2016 · 202 posts · 61 votes
10y
@Franklin Romine - Thanks for the great idea of the lines of credit! I think I will reach out to my primary lender today regarding that idea as well since I didn't have my cash out refi figures go in my favor.
Investor · Southeast, MI · Member since 2016 · 425 posts · 184 votes
9y
This in interesting, as many people have said you can get the purchase price AND documented repairs/upgrades. However, when I read the the Fannie Mae guideline, it does not mention repairs/upgrades. Can someone confirm? I don't see how BRRRR works if you can't finance the R-Repairs/Rehab.
"The new loan amount can be no more than the actual documented amount of the borrower's initial investment in purchasing the property plus the financing of closing costs, prepaid fees, and points on the new mortgage loan (subject to the maximum LTV, CLTV, and HCLTV ratios for the cash-out transaction based on the current appraised value). (https://www.fanniemae.com/content/guide/selling/b2/1.2/03.html)"
I actually just finished my 6 month seasoning time and was able to pull out the maximum LTV on the new (after rehab) appraisal. If I wanted my initial purchase money back I could have done it right away but I wanted my rehab cost also so I had to wait. My appraisal did not come in where I had hoped but I still did very well on the buy and the property cash flows nicely. @Jerry Padilla was amazing and the process could not have went easier. On to my next property!
Investor · Southeast, MI · Member since 2016 · 425 posts · 184 votes
9y
Thanks, so you left the property, or will leave it in your name for the 6 months of seasoning. I want to utilize the Delayed Financing Exception, but it appears I won't be able to include rehab costs, with this method.
I'm not sure what you mean by leaving it in my name? I purchased the home cash and did the rehab in cash. I then waited the 6 months and did a cash out refi to recover my cash. I did a 30 yr loan at a fixed rate and now I will use the cash that has been returned to me to purchase another income property.
Investor · Southeast, MI · Member since 2016 · 425 posts · 184 votes
9y
Thanks. Sorry, I should have been more clear. Do you have the property in your personal name, or a LLC? There has been mixed feedback on having assets in your own name, or a LLC.
Investor · Corona, CA · Member since 2016 · 14 posts · 7 votes
9y
I didn't even think of that!
Yes, my properties are in my name, not in a LLC. I'm just starting out and have read the pros and cons of the LLC and for now I'm just leaving everything as it is.