Question re Exit Strategy for Buy and Hold with Private Money

[Manuel Savorelli]

Getting ready to purchase first MFR property with private money and I'd like guidance on the exit strategy.

A lot of the material posted deals with rehabs and cashout-refi of x% of ARV. My question(s) is for buy and hold.

For the sake of using round numbers, let's say the property costs $100k and I put down 20% from personal cash, and raise 80k from PML at 8% interest, for 1 year.

What are my options to refinance loan before note comes due? I'm confused because we aren't dealing with ARV so that eliminates the spread that you would pay your principal and interest.

Also,  would bank/credit union know that I received private money to fund original deal? 

Thanks in advance

[Sam LLoyd]

First, are you using personal money from a friend or a hard money lender?  If it's from a friend or relative, which is my guess since 8% is a great deal from a hard money guy, they can't just give you the money.  The best thing to do is have a bank work up an escrow account with a lien against the property... that covers you and them. That is also visible to the banks when they check your credit, which answers your last question.

2nd is the one year mark.  If you are making a commitment to pay in full, I've heard of someone doing 13 months, but I would put it at 18 months minimum.  The reason is that some banks are going to want to see you own it for a year before refinancing, especially if you're using a new appraisal.... they are going to want to see either what you've done to warrant a higher price, or have enough time to buy to blame a higher price on appreciation.

As far as LTV. You might find a bank that will loan you 80%, but I've done all my refis at 75% the last couple years. However, if you're already into it for 20%,or 20k, as in your example, it might be best to save up 5k and refinance it at the same value instead of paying for a new appraisal and such. If you've done a lot of work though, pay for the appraisal.... say it come in for 120k. You're into it for 20, you have 20 in appreciation... Your into it for 33%. This should be easy to refi. If you refi it at 75% LTV, you might even pull out 10k to use... however, your rates will change if you're pulling cash out, and it might not be worth it for only 10k.

I've done 4 refis in the last 2 years, so if you have any more questions, feel free to ask.