Rehab/Refi/Rent/Cash out

[Curtis Brown]

I want to make sure i have this right. Say I buy a rehab using a hard money loan to purchase and rehab the property. And instead of selling the property i want to keep it as a rental property. But i also want to refi the property for a better loan and also pull cash out if i have enough equity. This is possible right?

[Jon Holdman]

When I've done it (working on one right now), I've used hard money. Around here, 70% max LTV based on the repaired value. Then, you have to refi.

If you want to do the purchase and rehab with no money out of pocket, and the max LTV is 70%, you need to have the purchase plus rehab under about 60% of ARV. That's because you have closing costs, points, and interest on the hard money until you can refi. Figure about six months. Then, it will be 3-4% to do the refi. Be sure you know what the LTV on the refi is. If its only 70%, then you need to hard money to be only about 65% if you want to roll the refi costs into the refi loan. Then, you would need to purchase under 55% to not come out of pocket.

Around here, this is just about impossible. Its just too competitive. No idea what its like in Milwaukee.

Realistically, if you have no cash, you should not buy rentals. Don't even try doing rentals unless you have about six months expected payments in the back. Things happen, and having a $3000 bill that has to be paid right away is entirely possible.

If you want to own a few dozen rentals, like you seem to want, you WILL have a $3000 bill every few months. Roofs last 20 years. Three dozen rentals means 1.8 new roofs every year, or one about every six months. Furnaces last maybe 15 years. That's one every five months (though mostly in the winter). Sewer lines last maybe 30 years, so that's one a year. Those have a bad habit of failing in the same neighborhood all at once.

You need a cash reserve to be a landlord.