Refinancing

[Daniel Patton]

I've heard about a strategy people use when buying, rehabbing and then refinancing to "get their cash out". Would anyone be willing to explain how refinancing a property works in an example like this? (excludes closing costs/other fees)

Purchase price: 150k

-127.5k from hard money lender (85%)

-22.5k personal funds (15%)

Rehab: 40k covered 100% by the hard money lender

ARV is now $300k

If I find a traditional mortgage loan where they will loan 70% of the home's value, that means that they will lend $210k, correct? Would they actually give you a loan that is technically making you a profit?

[Michael Noto]

@Daniel Patton Yes. The loan amount in your example would be 210k. When you find a bank willing to do a cash out refinance ask them 3 things

• Will the refinance be based on the appraised value of the property?
• How much seasoning do you require for the refi to be based on the appraised value?
• Is there a limit to how much in terms of dollars that I can cash out? 

Ask these questions in your due diligence period with different lenders so you are all on the same page and you can move forward with confidence.