Refinancing properties paid for by cash...

[James Varnadoe]

Newb question, apologies if posted in the wrong spot. 

I read about situations where investors would buy properties with cash at below market value and then refinance them to get their cash back out plus more and use this as money for their next investment. Can someone explain how this works and give an example? Just trying to understand what this means. Thanks.

[Rich Baer]

@James Varnadoe

James,

    House is worth $75,000 retail. You buy it for $30,000 cash because it needs work. You put in the $20,000 to fix it up for rental. You go to a Bank or Credit Union. You ask for a loan. They appraise it for let's say $70,000. They will lend you a percentage of the $70,000 (whatever their requirements are). If they will lend you 75% of appraisal then you recoup $52,500. You take your money and buy another. You see from my example there can be the possibility of getting extra cash but that is not the normal scenario.

Good Luck,

Rich Baer, Esq