Real Estate Investor · Palm Beach County, FL · Member since 2017 · 3k+ posts · 2k+ votes
I was under the impression if you paid cash to purchase a property that you would then be able to cash out refinance as soon as you have finished the rehab and rented the unit out utilizing the BRRRR strategy. I was just told in another thread that even if you pay cash for a property you still have to wait 6 months in order to get your cash back out at the ARV value and if you try to cash out refinance prior to 6 months you would only be able to get the LTV based on the purchase price. Is this the case all the time or does it vary depending on the lender? The whole point of the BRRRR strategy is to force appreciation through the rehab ultimately creating a higher value and appraisal so when you take your 70-75% LTV you get all of your money back out. Can anyone help clarify?
@Brian Garrett one of my clients purchased a triplex with cash a few weeks ago. He was able to get most of his money out based on current market value (they had to get the property appraised).
There was no seasoning or anything required...i'll try to ask his loan officer what loan program he used...but again, since he bought with his own cash he was able to get most of it back as soon as he was approved and underwritten.
You can use the Delayed Financing exception to get a loan of 70% ARV, based on appraised value, upto the purchase price and closing costs.
That is the FM guideline - a loan at 70% of the purchase price is a lender overlay. Call around to find a lender that will get you the results you want.
You can use the Delayed Financing exception to get a loan of 70% ARV, based on appraised value, upto the purchase price and closing costs.
That is the FM guideline - a loan at 70% of the purchase price is a lender overlay. Call around to find a lender that will get you the results you want.
Can you help me understand what you mean by 70% of ARV based on appraised value up to the purchase price and closing costs? If it's only up to the purchase price and closing costs then that's not 70% of ARV. Basically what I'm trying to figure out is if I pay cash for a SFH for example, rehab it, rent it and then go to refinance it say 3-4 months after purchase can I get a 70-80% LTV cash out refinance at that point based on the NEW appraisal after the rehab is complete? Or do I need to still wait 6 months regardless? That's where I'm confused.
I think that it is possible to find a low or no seasoning lender if they keep the loan on their books. Probably more likely if you already have a big portfolio loan with them.
But what you say is true, it is extremely difficult to find such lenders. One clarification on your statement, though, is that I've found people willing to do an immediate refi, but it's based on the purchase price + rehab costs, not just purchase price.
I think that it is possible to find a low or no seasoning lender if they keep the loan on their books. Probably more likely if you already have a big portfolio loan with them.
But what you say is true, it is extremely difficult to find such lenders. One clarification on your statement, though, is that I've found people willing to do an immediate refi, but it's based on the purchase price + rehab costs, not just purchase price.
Shouldn't the refinance be based on the new value and appraisal after the rehab?
hi Brian - here's the deal on delayed financing through Fannie Mae -- if you buy a property in cash, you can take cash out within the first 6 months using the delayed financing exception (other than death, inheritance or divorce this is the only way to take cash out on a conventional loan within the first 6 months) -- 1) all money used to purchase the property must be your money. You have to present the closing statement to the lender and source of funds to prove the property was purchased with your cash (can be borrowed from HELOC, etc as well). The loan must disburse no more than 6 months from the date you purchased the property. 2) the lender can you lend you up to 70% of the MARKET VALUE (per an appraisal) of the home (not the purchase price), provided 70% of market value is not greater than the original purchase price. Keep in mind the rehab must be complete and the property condition must adhere to FNMA standards from an appraisal standpoint (all rooms must be finished, painted, etc., and meet applicable state laws related to carbon monoxide detectors, water heaters, etc.). You can typically qualify for this so long as you will not have more than 10 financed 1-4 unit residential properties after taking the cash out. Feel free to PM me with any additional questions
that's correct - the idea is we know you purchased for cash and there is some implicit discount associated with that, so assuming we have a satisfactory appraisal, we can lend up to 70% of market value, within the first 6 mo provided all delay financing excpetions are met.
that's correct - the idea is we know you purchased for cash and there is some implicit discount associated with that, so assuming we have a satisfactory appraisal, we can lend up to 70% of market value, within the first 6 mo provided all delay financing excpetions are met.
@Brian Garrett one of my clients purchased a triplex with cash a few weeks ago. He was able to get most of his money out based on current market value (they had to get the property appraised).
There was no seasoning or anything required...i'll try to ask his loan officer what loan program he used...but again, since he bought with his own cash he was able to get most of it back as soon as he was approved and underwritten.
@Brian Garrett one of my clients purchased a triplex with cash a few weeks ago. He was able to get most of his money out based on current market value (they had to get the property appraised).
There was no seasoning or anything required...i'll try to ask his loan officer what loan program he used...but again, since he bought with his own cash he was able to get most of it back as soon as he was approved and underwritten.
Hey Patrick thanks for sharing. Please let me know if you find out who he used.
There are no seasoning lenders out there. But as stated earlier, unless you do delayed financing whereby you are able to go the conventional route, then a no seasoning lender is going to have terms that will most likely be commercial like (ballon payment, higher interest rate, etc)
How do these rules apply if you buy multiple properties on one transaction?
I recently purchased 3 rental properties for one $ amount, and now I want to rehab 1 of them, and do a cash out re-finance for that 1. Technically there is no verifiable "purchase price", so do lenders have to use appraised value no matter what the time period is?
@Brian Garrett ok my lender got back to me. she's fast :)
"Yup! He paid cash for the triplex so since he paid cash we could give him a loan for 70% of the value of the home to reimburse himself. However we need to show the paper trail of the cash. Does that make sense?
If you do not pay cash there is a 6 month seasoning period."
@Brian Garrett ok my lender got back to me. she's fast :)
"Yup! He paid cash for the triplex so since he paid cash we could give him a loan for 70% of the value of the home to reimburse himself. However we need to show the paper trail of the cash. Does that make sense?
If you do not pay cash there is a 6 month seasoning period."
This is essentially the same as a 70% money purchase loan. You will have needed to have bought a move in ready property at a 30% discount in order to get all of your cash out. Nothing taken into account for rehab costs.
If you found an amazing deal on a house that was to Fannie standards (financeable) for 70K, but was really worth $100K, then all is good. But chances are that 70K property you bought is worth 70K in present condition and you would probably will need to put $15k into it to get the ARV to that $100K level.
Prior to 6 months you will be able to get a loan for up to 70K. You get your purchase dollars but not your rehab. If you wait the 6 months then you could conceivably get $80K, leaving only $5K behind.
You can get the full 70-80% of the ARV without having to wait 6 months.
@Brian Garrett right. but it has to be REAL cash, no hard money, no private lender, no liens. I think that's the kicker - if it is purchased with a lien attached then it's 6 months' waiting. otherwise no waiting period.
@Brian Garrett right. but it has to be REAL cash, no hard money, no private lender, no liens. I think that's the kicker - if it is purchased with a lien attached then it's 6 months' waiting. otherwise no waiting period.
Right I understand now. Thanks for your help buddy.
@Naveen Kumar hit it on the head! In theory if you buy all in including the purchase price and rehab at 70% that's all of your money back minus the closing costs of the lender. However If you buy it at 85% of value and stick additional money into the property for rehab your on the hook for that money (above 70%) for at least 6 months. So this is why my strategy is to buy at 65%-75% with minor cosmetic work needed and with tenants in place from day 1. Then in 45 days or so I'm out of there with a 25% equity position, all or most of my cash out AND with tenants in place to cash flow. You can't lose with this strategy!
I keep getting mixed answers on this. Some people say you can only get 70-80% LTV based on the ARV up to the purchase price and others say you can get 70-80% LTV based on the ARV with no limitations. Why are the opinions mixed? Does it vary lender to lender like I initially asked?
If you buy with cash (no liens upon closing) delayed financing allows a cash out to 70% of market value or acquisition cost whichever is "less," under 6 months.
The "lesser of," determination is removed upon 6 months + 1 day at which time you can cash out up to full guidelines without the cap on your refinance.
With a local portfolio lender you may not have to abide by any of these guidelines, these are only for Fannie and Freddie.