Cash out options for 5th rental property?

Question

Hi all,

I have been thinking about to cash out a rental property, but not sure how to start. (I am total newbie). The reason is that I want to POSSIBLELY(so I may not buy if no good deal) buy a new rental. Let's say I want to buy a rental with 200k.

I have another 5 rentals and one mortgage is all paid off a while back. I heard when it gets to 4 or more, banks will no longer loan on investment? I don't know if that is true.

So basically, the way that am I thinking is, I have enough equity from my primary and I am sure I can get  a 200k HELOC as a second from my primary. The rate might be higher but I like it is flexible, and I can use it over and over again. So once I have this HELOC and if I do find a good deal in my range, I will use HELOC to buy it.

But the question is, after I used up my HELOC, how can I get cash out from this newly purchased rental, or if not, how can I get cash out from the rental that I already paid off? If I can get a cash out refinance on my 5th rental, use that to free up my HELOC, then I can re-use my HELOC to find my next deal and repeat, right?

Looking forward to hear some advices.., (I am in North Atlanta area).

Thanks you all.

Jenn

Clayton Silva · Answer

Hey Jenn, great question! We help investors navigate this all the time! So the rule is typically 10 loans will disqualify you from further conventional lending in the investment space, however there are plenty of non conventional (called non conforming or NonQM) loans that will still do the trick! I personally have 2 (about to be 5 in the next couple of months when I finish some rehabs) NonQM loans and they are phenomenal 30 year fixed rate loans. I would be more than happy to talk through your options because it sounds like you have several.

Long story short: always try to get conventional financing first but when you run into the 10 loan limit or your DTI is maxed out, that is when you should pivot to NonQM or other options! (There's also a lot of benefit in NonQM if you are self employed).

Hope this helps!

Long story short: always try to get conventional financing first but when you run into the 10 loan limit or your DTI is maxed out, that is when you should pivot to NonQM or other options!  (There's also a lot of benefit in NonQM if you are self employed).

Hope this helps!

John McKee · Answer

refi the paid off property as you will get a better rate than your heloc.  However you should get the HELOC if you qualify just to have access to the cash whenever you need it.

Jenny Scott · Answer

Thanks you @Alex Bekeza and @Clayton Silva those are great info. Do you know any lender in GA or Atlanta area do this type of loans? Or online lender? I used to have great experience with Penfed, but looks like they no longer offer any of those.

Alex Bekeza · Answer

@Jenny Scott Most investors in your shoes would do a 30 year fixed cash out refi with a DSCR loan.  The reason is because DSCR loans have no cap on the # of financed properties owned which allows you to scale past Fannie Mae and Freddie Mac's limitations.  They're completely based on subject property cash flow (the property's ability to cover PITI) so you don't need to provide tax returns or any type of personal income because your DTI doesn't matter.  These also allow LLC vesting, offer shorter seasoning periods, and you'd be surprised how close 30 year fixed rates actually are to conventional right now.  Don't hesitate to reach out with any questions on these.

Dylan M. Davis · Answer

The rental you have paid off would be easy enough to do cash-out refinance. However, if you recently purchased a rental property and do not have 6 months of seasoning, you could only refinance against the purchase price, not the new appraised value... Let me know if that makes sense.

Stacy Raskin · Answer

@Jenny Scott, DSCR loans are helpful as they help you scale beyond your DTI and your personal income isn't considered. Here's a bit more in detail about how rates are calculated for DSCR loans:1. Credit score- the higher the best. 760+ generally gets best pricing for investment property loans with most lenders2. Loan to value ratio: The higher the loan to value ratio (LTV) is, pricing takes a hit. So your pricing will be higher for a 80% LTV loan than for a 60% LTV loan.3. Are you cash flowing the property? Is your DSCR ratio greater than 1-meaning are you cash flowing. Many lenders will not do a DSCR loan unless cash flowing. If they will do a loan with less than 1, the pricing takes a hit. I've included an example below to help illustrate this.So different lenders have different rates (which do vary even for DSCR loans) but these are factors they all consider.See example below:DSCR < 1Principal + Interest = $1,700Taxes = $350Insurance = $100Association Dues = $50Total PITIA = $2200Rent = $2000DSCR = Rent/PITIA = 2000/2200 = 0.91Since the DSCR is 0.91, we know the expenses are greater than the income of the property.DSCR >1Principal + Interest = $1,500Taxes = $250Insurance = $100Association Dues = $25Total PITIA = $1875Rent = $2300DSCR = Rent/PITIA = 2300/1875 = 1.23DSCR loans are generally for investors who are looking to keep building their net worth and are looking for underwriters who are more investor friendly.

Alex Bekeza · Answer

@Jenny Scott Likewise, I do these in GA.  Working on two in ATL as we speak.

Anthony Dooley · Answer

In order to use the equity in all of your rental property, you need to talk to a lender that does commercial loans. They will appraise your properties and loan you up to 75% of the equity in those properties, which should be used to buy more cash flowing property. They will advise you, but it may be better to have an LLC and make it a business account with the lender. There is no need to involve your personal residence in the process. Interest rates on commercial and investment loans are around 8%, so it needs to be worth buying.

Clayton Silva · Answer

Yes! He is me! Haha, we are fully licensed in GA!

Cash out options for 5th rental property?

Most Popular Reply