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Updated over 8 years ago on . Most recent reply

cash out refinancing strategy
I was thinking about a new strategy for growing a rental portfolio and was looking for some advice. I want to purchase REOs with all cash fix them up, rent them out, then pull my original investment out, or at least a substantial part of it so I can do it all over again. What I don't know are the banks restrictions. First do I need to wait a year before I can pull out the equity? What LTV will the banks require, meaning how much can I pull out? How many times will traditional banks allow me to repeat the process? Are there any pitfalls that I should be aware of? Thanks.
For example, if I purchase a house for 40k, put 20k into it and have a ARV of 80k. I then put a renter in for 1200 per month. Can I pull out my original 60k investment?
Most Popular Reply

Originally posted by @Tammy Vitale:
I don't pay 100% cash. I use 25% down conventional loans so I don't need a heloc to get the equity back because I never put it in. I can get a loan at 6 months but based on the original purchase price of the property, not purchase plus rehab. After one year I can take $$ out based on a new appraisal. That's just my experience. And I pretty much stick with one lender because she makes it so easy for me up front. And I'm not doing more than one purchase a year, most years, anyways.
I do all cash in, and get it all back out with the refi...then use the same cash on the nest deal..repeat, and repeat, and ...in the end I never spend any money. All the deals have NCF over $300/month with a property manager in place. I don't need new cash since I use the same fash over and over again. This also means I can, based on property availability, do all 10 deals within a years time (in theory). Due to negotiations taking time, and rehab timing, the average is between 4 - 7 per year...never spending the money, using the same money.
The numbers:
Average cost per deal including rehab, fess, etc...) $50,000 - 60,000
Average ARV $80,000 - 92,000
75% REFI (6 month) $60,000 - 69,000
Average cash out at refi, an additional... $ 3,000 - 10,000
Average number of houses per year 4 - 7
Minimum added NCF per year (avg. $300/deal) $ 1,200 - 2,100/month
Equity is still around 25% per property
Cash spent total per year $ 0
One of the many added advantages to this strategy is I can outbid most other offers since I can offer more than the AP, as long as my total cost doesn't exceed the 75% of the ARV, since I get it all back at refi.