Pulling out the equity from an investment ???

Question

Im a fairly new investor, just starting to buy houses to flip, I’ve had rentals for 10 years which is a different ball game. I’m trying to figure out how to pull the equity of a house that’s is worth more than what I purchased as an investment? My Bank won’t do it, but i know there’s a way to do it.

Purchased a home $93k tax valued $150k, there’s $43k of equity.

I’ve paid out of pocket to rehab and will be on the market in a few weeks, but if i could of pulled some equity from it, i would of used my money towards another. I’ve asked CPA, Broker, investors, and no one seems to want to help at all, so investing language has been all self taught. I know the remodeling side I’ve done it for years and have built a business relation with all my subs. Now is getting the investment part.. any advise or help?

Andrew Postell · Answer

@Hugo Navarro a couple of pointers here:

• If you purchased with cash, thus not having a loan on the property, then you have 100% equity in the home!  That small little description is SIGNIFICANTLY different than saying you only have $43k of equity.
• You should absolutely be searching for a different lender.  As an investor you CANNOT work with just one bank.  That's too limiting.  You need at least 3.  Maybe 4.  You need options for this very reason.  Whatever state that property is in....post in that state forum here on Bigger Pockets that you are looking for a lender who can do this.  You might even want to reference the city it is in since a local lender might be the best route to go.
• As mentioned above, a Line of Credit might be a good option.  Low closing costs....you don't pay interest if you don't use it....but the rate will be adjustable and higher.  So you will want to pay it back.  Which is a good use if you flip.  Then you pay it back every time you sell a property.  It's actually a great product for flippers.
• You could do a straight cash out mortgage.  You can absolutely find this.  This should be a very long term, fixed rate loan (20 year minimum) so you can forecast your cash flow accurately.  I wrote an entire post on this subject for the Fannie/Freddie loans (if that's a loan you can get prequalified for) and you can read about the proper way to structure it HERE

*WHEW* I know that is a lot but this is the information you need to know. Feel free to tag me with any other questions. Good luck!

Stephanie Medellin · Answer

@Hugo Navarro  You won't be approved for a conventional refinance if the property is listed for sale.  You might want to look for a short term bridge loan, but is it really worth the fees if you're selling so soon?  You're better off pricing it right at market value, (which is good practice anyway - you don't want to overprice!) and go under contract quickly.

Hugo Navarro · Answer

Thanks!! Yes I understand I have the full equity, but I might have asked wrong. If per say the house is worth $93 but valued at $150, how can I borrow against it with having that $40 plus in difference to rehab project? I dont want to use hard money lenders, I can rehab a house in 2 months complete, and hope it sells withing 1-2 month. With that said I reqally need to find a way how to use my assets and borrow against them to rehab houses and keep it going without having to many loans or worrying how to pay back.

Hugo Navarro · Answer

@Stephanie Irto thanks that’s good info, I am not knocking any one down for each their own. I was just wanted to figure how it works, because it just seemed that you have to sell quick in order to pay back the hard money lenders as interest is high. But I am interesting in how to pull the equity out of investments properties, because I have some road blocks with banks to fund, because if It’s not my primary they won’t. And i had banks that wouldn’t fund me using my primary because I never had a mortgage and my house was paid for prior. I’m  trying to learn as i grow, it’s always good to have any advise. Thank you

Stephanie Medellin · Answer

@Hugo Navarro  Yes, you're right most hard money lenders do want you to put some money down.  It's still a benefit for most people because otherwise they wouldn't be able to obtain financing on a property in poor condition.

Once it's fixed up and in good condition, they are able to do a cash out refinance based on the higher value, which will pay off the hard money loan and also give them a bit of cash at closing.  They then use that cash as a down payment for the next one.  This way, you don't really have to come out of pocket for each additional down payment, and your tenants are paying rent to cover the mortgage on the 1st property.

They are just finding good enough deals to cover all the costs and still have enough equity left to be able to reinvest.

Hugo Navarro · Answer

@ Stephanie Irto, I’m not trying to pull equity on this one...i was asking for the next house i flip and has enough equity to use to fix, I was using it as an example. I’m still trying to get my head around how people make money borrowing from hard money lenders, as most ask for 20% down plus fee....so I funded myself with my cash out equity..but I really would like to learn more as financing projects to keep at least 2 going at once or so.. if possible.

Hugo Navarro · Answer

@ Ryan S. Kearns  house was not financed was bought cash, just happened to have a good equity. This house is getting final touches this week to be in the market, but i wanted to figure out for the next one. It’s a learning process. Don’t know if it’s a good idea pulling an equity in it now, to buy another propert, but Im open if it is or not?

Nick C. · Answer

You won't be able to pull out 100% of your equity. There's got to be some left in the property for the lender. Is the loan balance still 93k? If you're able to pull out 80% of the equity, which is really good, you could end up with 20k or so after all the fees. I don't know if that's worth the cost you're going to pay, there will be time invested into finding a bank and the paperwork involved, then there's closing costs, appraisal fees, etc. By the time it gets done you may be better off waiting on selling the other property.

Scott D Burrows · Answer

@Hugo Navarro

Call all local banks and ask for either a HELOC or REFI cash out on your investment property. Small banks (<10 locations) should be able to help you. Just keep calling and calling. My guess is after 5-7 banks you will get a yes.

@Andrew Postell is in Texas, he should be able to help you get refi.

Also, another way to fund flips is to use business credit cards and then use a payment provider like Venmo or Plastiq(you can actually send physical checks using your credit card - they charge a 2.5% premium or somewhere around there) to pay the contractors.

Good Luck,

Scott

Ryan S. Kearns · Answer

Even at 85% LTV, there would be little cash out after paying off the first lien and closing costs. My suggestion would be a fix and flip line of credit that will, for example, finance 80-90% of the acquisition cost and 90-100% of the rehab. I think that is your best bet. I can assist if and when you get to that point.

Pulling out the equity from an investment ???

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