how should i refinance my first investment deal to pull money out

Question

I purchased a investment property which was never completed.  Because of this I had to use equity from my primary residence to fund the original purchase plus cost of finishing the project because no bank would give me a loan due to an un completed house.

The project should be completed in about 3 months, and my original plan is to do a cash out 30 year loan to pay back my equity loan and put the property in a LLC.  The amaunt on the loan will be about half of what the property will be real estate appraised for (I have done 80% of the work myself, sweat equity, etc...).  I would like to use some of this equity to purchase other properties how can I do this?  The one bank said they will loan me what I have into the property (if i show reciepts) but nothing else. Can I get an equity line of credit on this loan in a LLC?

If I flipped the house I could get all the money but the property borders my property and I was planning on keeping it for at least 15/20  years and just renting it out.

Thanks

Scott W. · Answer

I did a cash out refi last year. it was 6 months AFTER the purchase date. took me 2 months to rehab and I had a renter in there the day after.

at the 6 month date, a local bank gave me a 30 yr fixed at 4% 75% LTV.

shop around...call everyone. you can get these deal done once you get a renter in there with a lease, and 1st month's rent/deposit.

Jeremy Williams · Answer

I'm curious being new to different types of loans/refinancing.  My parents have some properties and a HELOC they have no problem letting me use.  I know if I used any cash given to me for a down payment I'd have to let it season for 60 days.

With a refinance would I have to hold the property for a certain amount of time before I can refinance? 6 months is what I seem to be reading.  Just want to plan this out before because the HELOC payments would be double what a conventional loan would be due to a shorter pay back period. Can't find any great deals that I can really buy with a conventional loan, cash/HELOC looks like the only way right now.

Kevin Macdonald · Answer

Thanks for the replys.  I dont knbow how long they need for seasoning but by the time the house will have a tenant in it I would of had the house for just a little over a year.  Its taken me 9 months dealing with the county/health department/etc  with the permits (this is part of the reason I got a good deal).  I had to re-perc the lot which had to be done during wet season, etc...   That is all done I have all permits in hand, new septic installed, new well, and everything is going smoothly now.

Thanks for the advice, I will a tenant moved in first then start seeking a loan, and I would like to lock in a 30 year low rate since I plan on having the house for a while.

Thanks for the advice I will update when done.  And my plan is to keep doing this.

David Beard · Answer

Forget local bank "portfolio loans" that will either be floating rate after a few years (ARMs) or have a 5-7 year balloon.  NOW is the time to lock in low 30-year fixed loans while rates are still at these lifetime lows.  You can use portfolio loans later after you've grown your empire to 10 houses.

Kevin Davenport · Answer

I would find another bank. Call local/regional banks and ask if they keep their loans in house as portfolio loans or sell them. Also ask if they require seasoning or that you own if for so many months before they will base their loan amount off the appraisal. It might take some searching but will be a great reward when you find one.

Your strategy should be to fix up the house and get it in move in condition, get it rented and then go to the bank and apply for a refinance loan. When you find the right bank, they will do an appraisal and loan you up to 70-80% of that. That will let you pay off your credit line and buy another property. Rinse and repeat with the next one.

Robert Leonard · Answer

Your best bet by the way things work that I know of is to get a loan (may be considered a commercial loan) from a local/regional bank/credit union that will give you at most a 20 year term on 75-80% of the appraised value as a cash out.  You can expect to pay about a 1.5-2% above the best rates for consumer mortgages for this type of loan.

You can payoff your equity loan if it is burdensome or not if you need the cashout funds for your next investment purchase.  I like the way you are thinking and your resourcefulness, just don't overextend yourself with too much debt to fund your deals.  Make sure you keep enough cash reserves for the unexpected.  You should expect the unexpected.

David Beard · Answer

@Kevin Macdonald - you want a 30-year fixed rate loan, and lenders generally will follow Fannie Mae guidelines (in order to sell the loan on the secondary market).  Sometimes a lender will impose even more restrictions than Fannie requires, unfortunately.  Fannie permits a cash out refi using a new appraisal after you've been on title for 6 mths.  So just keep calling mortgage brokers and banks until you find one that follows the 6-mth guideline.  Without knowing anything about your area, I'd start here to find lenders in your state that are probably more likely to be helpful.

Fannie Mae Homepath Lenders

Graham Mink · Answer

Hi Kevin,

I would finish the renos, move the tenants in, then approach a couple of banks about doing a cash out refinance. I'm not sure why your bank is limiting it to the rehab cost, it sounds like they know too much about the property. If you finish it all up then approach someone else they should just look at it like any other refi. You should be able to get 75% ltv on whatever the appraisal comes back at.

If you can't find a local or national bank to get you where you need to go I know that univest does Helocs for investment properties. I haven't dealt with them yet but I plan on giving them a call this summer to add a HELOC to one of my properties. Let me know what you find out.

Graham