Delayed financing w/ for more than original purchase price?

Question

I'm investigating delayed financing options for a BRRRR property and have run into a little hiccup - wondering how others have dealt with this. Basically, unless you're willing to wait for a 6 month seasoning period, it seems like the requirements are that your delayed financing loan amount cannot exceed your original cash purchase price (plus escrows, closing costs, etc...). This seems quite limiting if you're trying to BRRRR a property in under 6 months since so much of the out of pocket expense are the rehab costs which you aren't able to refi out of.

Is it really as black and white of a choice as 1) wait 6 months to pull out the full 75% LTV or 2) if under 6 months only pull out the original cash purchase amount?

I heard a podcast this weekend with a guest from Ridge Lending Group that seemed to imply if you documented something the right way on your closing statement that they could then let you do a delayed financing for the purchase price plus rehab costs (still under 6 months). Does that sound familiar to anybody?

Thanks for everybody in this forum already for even getting me to this point!

Thyra Dixon · Answer

Listen to Podcast #301 - The Incredible Power of Long-Distance BRRRR Investing with Alex Felice.

@Alexander Felice does delayed financing with his rental purchases. He mentions in the podcast that he has his contractor submit an invoice for the full cost of renovations to the escrow company. This gives him full purchase and reno costs on the HUD-1 so that he can get that amount out when the property is rented.

Chris Mason · Answer

In theory it is possible to make rehab budget part of purchase price.

Maybe instead of $400k, you make the sales price $450k and the seller agrees to disburse $50k to a GC of your choosing. Now you have a purchase contract and all supporting paperwork showing $450k purchase price.

In practice, a first time rehabber isn't going to turn a property around in six months anyways....

Perry Farella · Answer

Ryan,

There is a great rehab loan for small investors of single family homes called HomeStyle. All with 15% down based on purchase price + rehab dollars using ARV from the start AND projecting future rent to allow you to get 75% of the future rent as extra income to qualify for the loan; 30 term, rates around 6% these days, no pre-payment penalty so you can sell when ready and repeat. No worries about 6 months seasoning etc. I use it for my clients on large and small rehabs. I write about in my blog link on my signature. Happy to anseer questions anytime.

Caleb Heimsoth · Answer

@Ryan Daigle. The easiest way around this is to just use a local bank. They’re much more flexible but then you won’t get the 30 year terms you get with Fannie and Freddie Mac.  Eventually you’ll likely have to go this route (or Private money) route once you hit 10 loans

Alexander Felice · Answer

Thanks for the tags!

I do BRRRR with low seasoning AND using fannie mae loans AND get back 100% of my funds. I've done a few in ~10 weeks and I've managed to do one as fast as 8 weeks total (purchase, rehab, and refi)

put the rehab and insurance costs on the HUD-1, you do this by providing an invoice from both to the title company BEFORE closing. You will have to pay cash for all expenses at the time of closing, so it shows up on line 120

you cannot use borrowed money for this as they will source the funds

find a lender who knows how to do this BEFORE YOU PURCHASE. I get about ~5 emails a day inquiring about this strategy and the number one problem people run into is the lending side. Find the right lender before you start and work your exit strategy into the deal before you buy the house.

Mat O'Grady · Answer

@Ryan Daigle

You could check out this post. It may be of some assistance.

https://www.biggerpockets.com/forums/48/topics/460294-how-to-cash-out-1-4-unit-property

Tom Gimer · Answer

Hmm this whole subject sounds vaguely familiar...

Now I remember! It was the interviews with the FBI a decade ago.

Saravanan Saravanan · Answer

@Alexander Felice

Some lending instituttions would will to take before and after pictures.  Along with this supporting scope of work with costs adds value.  They would use that for refinance consideration to overcome the seasoning requirements.

Private or Hard money lender might go with market value

Steve Vaughan · Answer

This works well for OO that won't face higher tax consequences for selling $50k higher.  Watch transfer taxes based on PP. In Philly, that'd be an extra $2k. Here in WA, an extra $890.

A little birdie may have told me to have a sellers disbursement letter on file with the title co. Signed by both buyer and seller, instructing title co to disburse $50k to Joe Smith (of Joe Smith contracting), Trustee.  Said disbursement instrux cannot be modified without the expressed written consent of both buyer and seller.  Who knows if this actually happened...

Delayed financing w/ for more than original purchase price?

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