Best way to pull money out of a property after paying cash?

[Ethan M.]

Would love any input on the best way to pull cash out of a property after paying cash.  We like the ability to move quickly by paying cash but are concerned about having our money tied up.  

[Eric Veronica]

@Ethan M.  If you are looking to take cash out with a conventional loan in the first 6 months of ownership then you will have to meet the delayed financing guidelines.  Main takeaways from delayed financing are 

- the value of the property will be capped at the purchase price even if the home appraised higher. 

- you will have to prove source of funds for the purchase 

- if you opened any new unsecured debt when purchasing the home then that debt must be paid off when cashing out. 

If you wait 6 months then these requirements are waived 

[Sam Shueh]

Apply mortgage. Often 80% of the appraised value.

[Eric Veronica]

@Ethan M.  If you are looking to take cash out with a conventional loan in the first 6 months of ownership then you will have to meet the delayed financing guidelines.  Main takeaways from delayed financing are 

- the value of the property will be capped at the purchase price even if the home appraised higher. 

- you will have to prove source of funds for the purchase 

- if you opened any new unsecured debt when purchasing the home then that debt must be paid off when cashing out. 

If you wait 6 months then these requirements are waived 

[Chris Mason]

Originally posted by @Ethan M.:

Would love any input on the best way to pull cash out of a property after paying cash.  We like the ability to move quickly by paying cash but are concerned about having our money tied up.  

 Funny, I lived in Novato from about K through 8.

...

Anywho:

FannieMae.com is down right now, so I can't post the guideline directly, but what you're after is the "delayed financing exception." If you check all the boxes, it allows you to do a cash out refinance immediately after buying the property as a true cash buyer. The difference between a true cash buyer and a "true cash buyer" is where the action is; make sure you drill down on that!

[James R.]

@Ethan M.

Another option would be a HELOC. You can then have access to the money without paying the interest until you are using it. My most recent property was purchased cash a couple months ago and rehab is complete so we are going through PenFed for a HELOC. The plan is to then purchase another property, rehab, refi, pay off Heloc, repeat.

If you go the delayed financing route then be sure to know exactly what your lender will do and requires at initial purchase. Most of the lenders I've talked to have additional restrictions on top of the Fannie Mae requirements. A common one I've seen is to not allow delayed financing for the rehab costs even if it was on the HUD and paid out via escrow.

[Andrew Postell]

@Ethan M. I wrote a pretty lengthy post on this subject that you can find HERE.  Let me know if you have any questions on it.

[Thomas S.]

Definatly apply for mortggae financing and get it locked in for 30 years.

[Adam Ghrist]

@Ethan Josiah It depends on your strategy. For Fix-n-Flip, some lenders will allow a refinance after you purchase in cash where-in they put a first lien on the property and lend purchase plus rehab (90% LTC). This frees up your cash to allow you to keep making transactions and allows them to follow the lender guidelines. For rental, there are lenders that will loan 75% Cash Out, and I have heard of lenders offering more locally out west, with a 3 month seasoning requirement for market value. For primary homes, or house hack strategies, a HELOC may be the best bet, as lenders vary, but overall some strategies will offer the best savings of all. It is very dependent on the lender.

[Ethan M.]

@Eric Veronica thanks for the info, much appreciated.

[Ethan M.]

@Chris Mason funny, when I'm traveling out of the Bay Area now I generally just say I'm from the North Bay Area because I get the same response - everyone thinks I'm from the state of Nevada when I say Novato.

Thanks for the info.  Not sure what you mean by "the difference between a true cash buyer and a "true cash buyer" is where the action is" but I'll keep investigating, though if you have time to elaborate that would be great.

Thanks!

[Sarah Jukes]

We just got a non qual loan (we are self employed low net income), against our home which we own with no mortgage. We can use the money for what we want & pay for it once we need it, but plan to buy a 2nd property and rent it out. And breakeven (just about). They have ageeed about 50% of our current home value based on our bank statement deposits.

[Matt Ward]

Unless you meet the delayed financing requirements, your use of the cash out refi funds will determine your ability to deduct your interest on that new loan....be careful.

[Ethan M.]

@James R. yes, good point about not needing to pay interest on a HELOC until the cash is needed.

[Ethan M.]

@Andrew Postell that post is exactly the detailed information I was looking for, thank you!!

[Chris Mason]

Originally posted by @Ethan M.:

@Chris Mason funny, when I'm traveling out of the Bay Area now I generally just say I'm from the North Bay Area because I get the same response - everyone thinks I'm from the state of Nevada when I say Novato.

Thanks for the info.  Not sure what you mean by "the difference between a true cash buyer and a "true cash buyer" is where the action is" but I'll keep investigating, though if you have time to elaborate that would be great.

Thanks!

 If the sales price is $100k, a true cash buyer can show a mortgage underwriter 2 months of bank statements demonstrating the $100k has been there the whole time. They saved it up the old fashioned way, through hard work and grit and all that.

If the sales price is $100k, a typical "cash buyer" borrowed the money from Uncle Jeremy two weeks ago. They had paperwork good enough to fool the listing agent and seller, but they are not actually a cash buyer as far as dear old Aunt Fannie Mae is concerned. 

Most people are in the gray area in between these two extremes, and this is where the action is. Some of these people in the middle we can get approved, and some we can't. 

[Cody L.]

Originally posted by @Ethan M.:

Would love any input on the best way to pull cash out of a property after paying cash.  We like the ability to move quickly by paying cash but are concerned about having our money tied up.  

View my last few posts. That’s what I’ve done. I’ve switched from buying properties with 80% LT(C) to buying cash then doing a refi at 80% LT(V) which at times means 100%+ financing. 

Most local banks. If you already own the property will loan against the appraisal vs the purchase price 

[Cody L.]

Originally posted by @Chris Mason:

Originally posted by @Ethan M.:

@Chris Mason funny, when I'm traveling out of the Bay Area now I generally just say I'm from the North Bay Area because I get the same response - everyone thinks I'm from the state of Nevada when I say Novato.

Thanks for the info.  Not sure what you mean by "the difference between a true cash buyer and a "true cash buyer" is where the action is" but I'll keep investigating, though if you have time to elaborate that would be great.

Thanks!

 If the sales price is $100k, a true cash buyer can show a mortgage underwriter 2 months of bank statements demonstrating the $100k has been there the whole time. They saved it up the old fashioned way, through hard work and grit and all that.

If the sales price is $100k, a typical "cash buyer" borrowed the money from Uncle Jeremy two weeks ago. They had paperwork good enough to fool the listing agent and seller, but they are not actually a cash buyer as far as dear old Aunt Fannie Mae is concerned. 

Most people are in the gray area in between these two extremes, and this is where the action is. Some of these people in the middle we can get approved, and some we can't. 

You’re reminding me why I don’t do 1-4 family :-) 

I’ve already told the story here about how I decided to pay off my primary home mortgage. I bought my home about 14 years ago. 5.875% rate. Never missed a payment. Home is worth 3x what I owe. It’s my primary residence.  And I have about 5x the loan amount in liquidity. 

So to do a term refinance that loan (no cash out) seems to be about as drop dead safe as a loan could be for a bank. Still couldn’t do it. Bank of America, who holds my loan, said that’s due to tax returns they’re worried about my ability to pay. I said “uh. The refi would give me a lower payment. So I haven’t missed a payment in 14 years but you’re afraid I will if my payment goes down?”

I was so fed up I enddd up just paying off all my single family home loans (about 10. Mostly from when I started investing in RE)

[Chris Mason]

Originally posted by @Cody L.:

Originally posted by @Chris Mason:

Originally posted by @Ethan M.:

@Chris Mason funny, when I'm traveling out of the Bay Area now I generally just say I'm from the North Bay Area because I get the same response - everyone thinks I'm from the state of Nevada when I say Novato.

Thanks for the info.  Not sure what you mean by "the difference between a true cash buyer and a "true cash buyer" is where the action is" but I'll keep investigating, though if you have time to elaborate that would be great.

Thanks!

 If the sales price is $100k, a true cash buyer can show a mortgage underwriter 2 months of bank statements demonstrating the $100k has been there the whole time. They saved it up the old fashioned way, through hard work and grit and all that.

If the sales price is $100k, a typical "cash buyer" borrowed the money from Uncle Jeremy two weeks ago. They had paperwork good enough to fool the listing agent and seller, but they are not actually a cash buyer as far as dear old Aunt Fannie Mae is concerned. 

Most people are in the gray area in between these two extremes, and this is where the action is. Some of these people in the middle we can get approved, and some we can't. 

You’re reminding me why I don’t do 1-4 family :-) 

I’ve already told the story here about how I decided to pay off my primary home mortgage. I bought my home about 14 years ago. 5.875% rate. Never missed a payment. Home is worth 3x what I owe. It’s my primary residence.  And I have about 5x the loan amount in liquidity. 

So to do a term refinance that loan (no cash out) seems to be about as drop dead safe as a loan could be for a bank. Still couldn’t do it. Bank of America, who holds my loan, said that’s due to tax returns they’re worried about my ability to pay. I said “uh. The refi would give me a lower payment. So I haven’t missed a payment in 14 years but you’re afraid I will if my payment goes down?”

I was so fed up I enddd up just paying off all my single family home loans (about 10. Mostly from when I started investing in RE)

 Honestly, that sounds about right. Since the market cooled a few months ago, a lot of "non-QM" (eg, ignoring the nonsense of Mr. Dodd and Mr. Frank) stuff has been coming online to address this idiocy. 

[Junior Soares]

@Ethan Josiah Best way I've found it is to wait the 6 months so you dont run into any problems, (hunt for deals in the meantime) once 6 months of ownership has passed, put the property into a 30 year fixed leaving 20% in the property if the numbers all work out. Best, Junior

[Alex Bekeza]

@Cody L. Sounds like you we're talking to a brick wall at B of A. Active investors like you, who might have a DTI higher than some banks want, should ask to use alternative UW methods like asset depletion. Sometimes don't even need to look at tax returns, even on a primary, in that case. And STILL get slightly sub 5.875% on 30 years. Anyway, glad you found a way to pay it off that made sense but I love sharing the asset depletion approach since I know so many great real estate investors also play the tax strategy well enough to end up with DTI issues.

[Cody L.]

Originally posted by @Alex Bekeza:

@Cody L. Sounds like you we're talking to a brick wall at B of A. Active investors like you, who might have a DTI higher than some banks want, should ask to use alternative UW methods like asset depletion. Sometimes don't even need to look at tax returns, even on a primary, in that case. And STILL get slightly sub 5.875% on 30 years. Anyway, glad you found a way to pay it off that made sense but I love sharing the asset depletion approach since I know so many great real estate investors also play the tax strategy well enough to end up with DTI issues.

Yeah, I have about $40m in RE debt, against negative income. If someone even mutters "DTI" I say "Thanks for your time" *click*

Luckily none of this is an issue when it comes to commercial (5+).  They want to know that as a borrower I have a track record, I have a down payment, and the property makes sense.  

[John M.]

@Sarah Jukes, where did you get your non-qualifying loan?