Cash Purchase with immediate 100% refinance based on ARV

[Carlos Webel]

Dear all,

I’m trying to make a model workout to maximize the quantity and the speed at which I can acquire rental properties in Texas. A typical deal would be structured the following way:

- Purchase Price: 90k$

- Rehab: 10k$

- Closing costs: 3k$

- Total acquisition cost ~103k$

- After Repair Market Value (appraised value) 135k$

- Refinanced amount based on 75% LTV: 135 x 0.75 = 101.25k$

In the example above I end up buying for almost no money down. The intention is to buy the properties cash using a combination of available cash and a stocks backed loan by a local bank and then re-finance them as quick as possible taking out as much cash as possible for the next purchase. The properties are being purchased under my personal name to maximize the use of conventional mortgage loans (10 for myself and 10 for my wife).

As you can see, the intention is to recover almost (or all) all the cash put in on the acquisition to re-invest in the next property as quick as possible. However, most lenders I've talked to will require a seasoning of around 1 year before I can cash out refinance. The ones that will work with immediate refinance will typically just refinance 75% of the purchase price which would be 75% of 90k in the example above, meaning that I can only take out 67.5K$, that means 35k$ down with every acquisition which will put a limit on how many properties we can acquire with the cash we can make available. The other option I have used in the past for 100% (or close to it) financing is to use temporal to permanent loans with hard money lenders, those allow me to get most of the cash out "quick" but they charge a significant amount of money in points and interest rate for the temporary loan making the deal much less attractive.

Buying the properties cash allows me to make the deal lot more attractive because it has less cost associated with it. I'm looking for alternative ideas on how to go around the seasoning requirement to get the money out for the next purchase. One idea that was suggested by a seasoned investor was to form a separate entity (a separate LLC) that will act as my hard money lender. So I can buy the property cash using that entity, that entity will have a note on the property and as such I wouldn't be effectively buying the property cash, allowing me to refinance immediately based on the appraised value of the property. Has anyone around worked out an arrangement like this effectively. Of course, I would only consider it if it's 100% within the legal and ethical boundaries.

Any suggestions are welcome.

Rgds, Carlos

[Carlos Webel]

@Jerry Padilla

Thanks for the feedback Jerry, you clarified some of the points very well. I've used rate and term refinance with Hard Money Lenders before. The problem is that they charge 10%+ Interest rate during the holding of the hard money loan and typically 4 points + in the process, when I add all that up it eats a lot of the meat of the deal, that's why I'm trying to find alternatives. If I refinance within less than 6 months I can recoup the money that I've put in (if ARV supports it) but cannot recoup the money put on rehabbing the unit. If I wait for 6 months seasoning I can recoup everything (if ARV supports it and I have the right lender) but it slows down my acquisition process significantly. I'm trying to think of a creative way of getting both.

Rgds, Carlos