Refinancing Cash Out Advice

[Derek Johnson]

Hello,

Hope everyone's New Year is off to a good start! I'm writing to seek advice and guidance on my next step in REI. Here's where I sit and what I'm planning next: I own two properties about 1/2 mile apart. The first was a 2br/1ba currently leased for 1 year at $900/mo. The second is a 3br/2ba (we added a bathroom downstairs), that was a foreclosure. We plan to buy another property and rent this one out next. Where you come in is telling me the best way to go about it and the next steps to take!

So, more info on our current property. We purchased it at $69,100 after a 4 way bidding war. We improved much of the house with sweat equity, and had a fair market value of $110,000 given to us by our realtor. So my plan is to cash out and refinance 80% of the new appraised value, which will hopefully be in that neighborhood. This would leave us roughly $20,000 to purchase another property, and we think we can rent the current for $1000/mo. 

A few questions. 

1.) Is this a reasonable plan?

2.) What type of fees should I plan for with refinancing?

3.) Is there any way to know how much a property might assess for before having it assessed?

4.) Are there penalties for taking cash out when you refinance?

5.) Once we have the money, would lenders be willing to give us a third mortgage after seeing the rental income on our tax return?

Thanks in advance!

Cheers,

Derek

[Doug McLeod]

1) Seems like a reasonable plan, but not clear whether the first house is already under financing.  How did you pay for the 2nd - hard money, cash?

2) Loan fees, title insurance, closing costs,etc. typically add up to 3000-3500 on the size loan you'd be looking for (at least that's my experience in TX) and you might need to pay the remainder of your insurance premium in addition (if you were making payments previously).

3) Have a realtor do a CMA and include all comps in same neighborhood within about 250 sq ft in size of your property, built within 5 years of your property, with same # of beds and baths - ignore the outliers and any that are much nicer or much worse, The avg price/sq ft of those remaining should get you pretty close, but no guarantees. (You can use these comps to challenge a low appraisal if necessary - I had to do that through the lender on one.)

4) Should not be any penalties for cash out.  You might have to ask around for a lender that is investor friendly and understands what you are doing.  If you own the properties in your own name(s), you can get Fannie Mae conforming loans at great rates.

5) Again, find a lender that works with investors. Many banks will require you have rental income on 2 tax returns. Others may only require one. Some will count rental income without any seasoning period. If you have a local REIA, ask around about lenders who work with investors.