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Updated over 3 years ago on . Most recent reply

User Stats

17
Posts
5
Votes
Travis Bagley
  • Investor
  • Cincinnati, OH
5
Votes |
17
Posts

Is a Cash Out Refi Smart In This Climate?

Travis Bagley
  • Investor
  • Cincinnati, OH
Posted

Hey fellow BPers,

I have 2 properties inside an LLC and have found the refinance part of the BRRR strategy to be the toughest yet. I've taken every precaution to setup my business right and limit my personal liability, but in doing so it seems like I've turned off 95% of the lending world. My best offer right now is 5.125%, 30 year, 75% LTV with a 2% origination fee as well as a $299 app fee, 595 due diligence fee, and add on the cost of appraisal.

Rate my refi if you will. Is this worth doing? I'm estimating I'm going to eat $7,000-8,000 in fees and my cash flow will drop to about $300 per property accounting for maintenance contingency. 

SFR
Value$165,000.00
LTV75.00%
Loan Amount$123,750.00
Rent1650
Taxes1882
Insurance750
Dues0
Rate5.125%
Balance123750
Loan Payment$673.80
Total PITIA$893.14
Residual Income$756.86
DSCR1.847
  • 30-year fixed, 5 year prepayment penalty (1% of prepaid balance)
  • 75% LTV at 5.125%
DUPLEX
Value$175,000.00
LTV75.00%
Loan Amount$131,250.00
Rent1725
Taxes2232
Insurance744
Dues0
Rate5.125%
Balance131250
Loan Payment$714.64
Total PITIA$962.64
Residual Income$762.36
DSCR1.792
  • 30-year fixed, 5 year prepayment penalty (1% of prepaid balance)
  • 75% LTV at 5.125% (the same for both scenarios)

Most Popular Reply

User Stats

1,509
Posts
994
Votes
Patrick Britton
  • Ann Arbor, MI
994
Votes |
1,509
Posts
Patrick Britton
  • Ann Arbor, MI
Replied

@Travis Bagley With a 2% origination charge, a prepayment penalty, and fees on top of more fees, you're obviously dealing with a commercial lender. For starters, you have my sympathy.

You have the exact same problem I faced about three years ago. I wish I could go back in time and do things correctly and get on the right track to begin with.

Is there any possibility you could actually quitclaim these properties back into your personal name? All too often, real estate investors are concerned with a tenant slipping on a banana peel and getting sued to death. This is why "they" all tell you to buy properties with an LLC but of course these geniuses forget that very few lenders want to lend to an LLC and those who do will make you pay for it!

Please realize that getting sued to death by a tenant is an incredibly rare event in which multiple things all have to go wrong at the same time. Have a chat with an insurance broker and see if there are some better and less expensive ways of protecting yourself. specifically, ask about umbrella coverage policies.

There are also some interesting tax benefits, in my humble opinion, from non-LLC ownership. But you should really speak to a tax expert about those things in detail.

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