No Seasoning Cash out Refinancw

[Hamdaweh Sulemana]

Hello All,

I purchased a foreclosed home cash for $150,000 about 6 months ago, spent $25,000 on fixes and have it rented out in an A community @ $1000 a month in Arizona. 
I want to get some of that cash/equity to use as down payment for a second rental property. I spoke to a lender about the no seasonings cash out refinance and here is what I was offered: 4.75% 30 yr fixed  possible loan 105,000, principal and interest and tax $700.

Is this a good deal? Is it possible to get a better deal somewhere with another lender? What are your thoughts?

Happy Thanksgiving!

Hamdaweh 

[Kevin Siedlecki]

Originally posted by @Hamdaweh Sulemana:

@Kevin Siedlecki: I don't expect expenses to be high since most things in the house are new and covered by sears warranty. How should I calculate the cash flow if I am in for 70K by your strategy?

Thank you

For an idea how I look at purchasing properties, take a look at my blog post from a while back: https://www.biggerpockets.com/blogs/6815/45137-my-...

For a no-seasoning refinance, you're never going to get the ideal terms some of the commenters are insisting you should demand, so take that off the table. Any bank I've worked with will only give you a loan based on the purchase price until you've owned it for at least one year. 70-90% LTV is the range, depending on a variety of factors. The fact that they are not requiring a seasoning period explains the lower LTV.

The short answer to your specific question is that for my strategy, I would want a minimum net cash flow of $700/month  (after all expenses, capex, and vacancy are calculated). You're not going to get that here, but you do own a cash-flowing asset. The question is: how can you make the most of this asset? 

That depends on your goals. Is this your first deal? Do you want to do more? If so, take enough cash out to do another deal. That probably doesn't have to be 105k. You could take a less out to preserve your cash flow, and then use that to put a downpayment on something that might perform a little better.  Personally, I would want to clear $500/month: enough to cover small unexpected expenses and put away a few hundred for reserves for capex and getting through vacancy. 

If this was just a stable cash flow move for you, and you're not interested in doing another deal soon, or you make good money from other sources and can save up for another property, then don't take any money out. Without debt service, you are getting a stable ROI with plenty of room for unexpected expenses.