Strategies to Re-fi a turnkey rental?

[Andrew R.]

Since my turnkey rental was already rehabbed, I can't just fix it up and improve the appraised value quickly. So what's the strategy for how/when to refi a turnkey rental to get some cash out of the equity? Can I take a HELOC ? Or cash-out refi? Are there rules? I have a conventional 30year fixed mortgage on the property, purchased a few months ago. Looking ahead for my next move. Thanks all!

[Chris Mason]

Hi @Andrew R.,

Appraisers will tend to be rather conservative until you've owned it for a year or so. 

[Brent Coombs]

Unless your equity is already at a higher percentage than the maximum that Lenders will loan up to, then this thread is a case study of the very reason why Turnkeys are not highly recommended for people in a HURRY to get rich by Real Estate!

Hint: You're SUPPOSED to find under-market value "deals" that will appraise significantly higher!

And by "significantly", I mean paying no more than 70% AS-IS appraisal value. Otherwise, you WILL be forced to wait, then wait some more. 

Hence: you'll be getting rich slower than the Turnkey Operator who to sold it to you! All the best...

[Curt Davis]

I am guessing you purchased the home closer to full market value. Even if you didnt when you refi they only do it based on a 75% LTV so I dont see you getting any money back.

[Andrew R.]

Ok thanks, so I'm interpreting this that my strategy for now, it to WAIT, and then if the value goes up via appreciation and market forces, then I might be able to re-fi in the future.  If and when that time comes, what is a good way to get some money out? Heloc, cash-out refi, other options? Interested in pros/cons of different methods.  For perspective, I paid 65K (so 52K mortgage debt), current appraisal is 70K, and let's assume it appreciates to 85K in the next few years (just for sake of discussion).  What could I do with my equity? Thanks!

[Brent Coombs]

@Andrew R., it'll probably be quicker to save up enough of your own deposit to go again.

If you're buying out of state because they're cheaper, the lack of assured appreciation is one of the down-side prices you pay. Are you buying your own primary in California? How has THAT one appreciated? A periodic HELOC (or cash-out refi) on your primary could work a treat? Cheers...

[Chris Mason]

Hi @Andrew R.,

HELOC if you're going to deploy the capital 'when the time comes.'

Cash out refinance if you're going to deploy the capital soon.

The reason is because you can open a HELOC and leave it at zero balance, meaning you don't pay interest on the money until you use it. So if you open a $200k HELOC and leave it at zero balance for 18 months, no biggie.

A cash out refinance, you begin paying interest immediately. You don't want to pay interest on money that you aren't going to be using for 18 months! But if you're going to deploy the capital soon, then you're saving yourself one set of closing costs by skipping the HELOC step in the middle.