How long until you can refinance an investment property?

Question

I found a 2 bed 1 bath listed at $5,000.

Thinking around 35-40 to rehab. Want to rent and refi to repay potential investor.

Want to update garage, clean up yard add fence, and update to a 3/2. Believe it could rent for over $1000 monthly.

Main question is how long until I could refi and are there strict requirements on this?

Michael Kinsella · Answer

@Kyle Swarts

Hi Kyle,

You are going to find that it varies - if you go the conventional route, then the seasoning requirements are going to be more strict.

If you go the alternative route, e.g. HML, then there are lenders with no seasoning requirements (be aware that their LTV's might be restricted in this case, and the rates/pts. will be higher than if you go the traditional route).

One thing that I would warn you about is the difficulty in refinancing low-value properties. You may be able to find a lender that is willing to do the take-out, but at the ARV you are likely looking at (sub-100k), those lenders become much, much more difficult to find.

I think that you are very smart in the way you are going about this by inquiring about a take-out lender before you move forward with purchasing the property for rehab.

Perhaps someone else can chime in with regards to refinancing seasoning requirements when going the traditional financing route.

Hope this helps,

Michael

Michael Kinsella · Answer

@Kyle Swarts

LTV = Loan-to-Value

(Loan Amount/Value of Property)

For example,

650k Loan Amount

1mm Property Value

65% LTV

HML = Hard-Money Lender

A non-traditional lender that possesses advantages (less stringent requirements, faster), and disadvantages (higher cost of capital) than a traditional lender, such as a bank.

Someone will chime in shortly I'm sure with regards to the traditional refinancing process, and perhaps someone with experience in refinancing sub 100k properties.

Regarding the advantages of each strategy,

With a fix and flip, you may be able to benefit from the large influx of capital when it sells (assuming things go right). However, you will not be building your 'passive' income portfolio.

With a buy fix and hold, you will not experience the large immediate influx of capital that a sale provides, but you can hold the property over the long-term for its cash-flow.

Kyle Swarts · Answer

@Michael Kinsella any information is helpful! Can you elaborate on what LTV and HML mean exactly? I didnt know there was a non traditional way to refi haha

Completely green here. Listened to about the first 90 episodes of the BPP and done a little independent research.

I'd like to start building my passive income portfolio, but maybe a simple buy and sell may be better to start?

Zoran Stanoev · Answer

From my experience, I think you’ll get more responses if you start your own thread.  I know it’s somewhat counterintuitive because the issues are similar but I don’t see it play out that way.

JB Cunningham · Answer

Hi all -

Don't want to hijack the thread,  but felt like I'm in a similar boat.  I have one property, paid $160 w/ $40 down,  then remodeled for another $15,  brought rents up 40% to the 1% rule.  Comps are prob close to $225-$240.  Was planning to make another purchase this year and hoping to use my 401k but self directed or even loans are not available.  I don't have enough in Savings to pull another for 1 yr+, but itching to build my portfolio.

Should I refi the existing property (how long do you need to 'season' at the new rents?) What is typical refi closing cost?

Any other creative financing you would recommend?  Look for owner finance, HML, partner?  I have a potential partner that doesn't have much to invest but is very handy so I'm interested in doing some sweat equity with him - only prob is I don't have the $$$ part :)

Any advise??

Garrett Roberts · Answer

I have seen 3 months deed seasoning for around 50% LTV, we do 1 year @ 75% LTV.  The previous post is very true that not only will the deed seasoning be an issue but it will be hard to find lenders who will do small loan amounts and if you do it will be expensive.

Kyle Swarts · Answer

@Joseph Brown if they're really cleaning the city up, it could eventually trickle over.

Joseph Brown · Answer

@Kyle Swarts after 6 months u should be able to refi no problem.  I hope that property for 127000 helps my comps.  Most would say it wont being that homes in my immediate area are going for much less.

Joseph Brown · Answer

@Kyle Swarts paid cash.  My cash.

Kyle Swarts · Answer

@Joseph Brown how did you finance your property? Man, if it's going for 127 around the block, definitely smart to rent IMO.

I hadn't even thought of renting to section 8, not a bad idea. I think as long as you're cash flowing something and can keep it paying off w.e obligations you have on it, hold that sucker.

How long until you can refinance an investment property?

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