How to refinance rental property in Texas?

Question

Hello All,

I plan to buy my first rental property but I need to figure out some financial nuances first.

Initially I was thinking of buying it with my own cash + money from HELOC on my primary residence, essentially becoming my own hard money lender. The reason is that HELOC interest rate is 3.75% vs 10-12% on hard money.

Then, once the rehab is done and property is rented, I would refinance it with a conventional loan taking all or most of my money out and paying back HELOC.

I explained this plan to a more seasoned investor but he said I would have to wait for a year before refinancing if I bought a property with all cash.

Is that right? Does it depend on a lender or is there a law that requires to wait for a year before refinancing?

Here is a numeric example to illustrate what I am trying to achieve:

• purchase price + rehab: $100K = $20K cash + $80K from HELOC
• ARV: $133K
• cashout refinance 75% of ARV: $100K goes pay off HELOC and keep $20K cash

Thanks
	Nick

Shawn Thom · Answer

I am finishing up my 2nd refi of a rental property.

My first was in Dallas and identical to what you explain.  I did a cash our refi on my personal residence.  Bought a house with cash, repaired with cash.  I initially found a guy that said he could do it with less seasoning and that I could pull some cash out above my costs.  When it came time, he told me that the mortgage vendor cancelled that program.  Supposedly with some new mortgage laws that took place in early January it made cash out harder on smaller loans IN TEXAS.  With a house at $100k plus it may be easier, mine was half that.  I ended up doing delayed financing so I got my initial purchase price back but couldn't loan on the rehab costs.  good thing is it cash flows well, bad thing is I have more $$ locked up in it than I'd prefer.

My second is in the final stages now in Arlington.  I ran into issues on it.  Moral of the story, stay away from garage conversions.  I found that the appraisers ARVs for refi's are extremely conservative so bear that in mind as well.  That one was straight forward otherwise.

On hard money, there are SEVERAL banks around dallas that will do much better rates that 10-12%.  they are more conservative than your normal 4 point 12-14% interest hard money lender, but I'm fine with that since I'm staying away from crazy stuff for a while.  I was getting 1 point, 7.5%, 20% down.  It covered purchase price and rehab.  Based on that, I won't do another cash deal for a while.

Jay C. · Answer

Nick

I dont think the one year thing is a law. Hey since when do bankers follow laws..lol, thats another story. I encountered the same thing so more of a standard practice I believe. Also be advised you wont be able to use the income of the rental as well to qualify one year down the road.. They usually want that on your tax return for 2 years. Lastly now days its pretty tough to get a loan on investment property for the newbie. You going to need a decent down in most cases since you are not a owner occupant.