Lender Won't Cash-Out 100% of Cost in Memphis

[Reed Rickenbach]

Howdy all! 

I am an investor here in Memphis, TN. Currently up to 7 buy-and-hold units. I recently came upon the perfect BRRRR - one in which an 85% ARV LTV Cash-Out Refinance would return all of my initial out-of-pocket cash for the purchase and rehab.

I have my "regular" local bank lender here, we have done previous cash-out refinances, construction loans, 85% LTV investment loans, you name it.

However, when I went to speak to my lender about this deal, they weren't keen on the idea of me having no "skin in the game." AKA, they were only willing to refinance up to the point in which I still had 15% CASH invested of the ARV. For reference, the numbers for this deal are as follows:

Purchase: $100k (Purchasing with 15% down, loan balance $85k)

Rehab: $10k

ARV: $135k (New loan balance assuming 85% LTV refinance $114,750)

As the lender stated, I'd effectively have no skin in the game once the deed was done, or at most $5k due to an overage in rehab, closing costs or carrying costs. 

Just wondering if anyone else has had issues with convincing lenders to cash out your full cost basis? Also to note here there are no issues with approving this due to income or credit. Pretty strong there. 

Thanks all!

[Craig Yarnell]

Hi Reed, did the local lender mention anything about seasoning requirements? Most lenders take a cost approach if you are trying to refinance prior to owning the property for 6 months. After 6 months however, they will use the as stabilized or current value as well as the income approach from tenant occupancy. You still have a couple mortgage to go before you max out on conventional, but it may be time to start researching b2b commercial loans in your LLC or entity name to avoid these types of issues. Hope this helps. Thanks