Cash-Out Refi w/o 6-mo Seasoning Period

[Brian Bistolfo]

Hi All,

I'm close to an offer on a BRRRR deal but am hung up on the second-to-last R! I've read up on the Delayed Financing Exception (excellent post on that here ) but unfortunately you can only get your purchase price back out, not the full 75% of appraised value.  So you'd still be paying for the rehab in cash...a no-go if you want to Repeat quickly!

Are there any good strategies for getting a cash-out refi (75% LTV) on the of appraised value immediately after tenant placement? Any new ideas/suggestions would be appreciated. Here are two that could work but I'm not sure about:

I could do a refi for the purchase price immediately, then a full refi 6 months later.  Unfortunately this would incur a lot of extra closing costs...probably $2k-$3k, right?  Say $50k purchase price and $25k rehab.  Would love to do this if y'all think closing costs could be significantly lower.

I've also heard of investors getting a loan from an LLC for the full purchase + rehab price (deed filed at county courthouse), then coming to their lender or bank for a refi once rehab and tenant placement are done...in this scenario there aren't seasoning period restrictions since there's already a loan in place when you run title. Have any of you done this successfully or know someone who has? It seems like this would be SOP for the BRRRR strategy but I haven't seen it discussed much.

Many thanks!

-Brian

[Stephen Gregory]

Hi Brian,

I'm glad I stumbled across this post.

I've done about 6 BRRRR properties in the last year or so.

As you know already, for a conventional loan you need 6 months seasonal. That's not gonna work for us who want to buy multiple properties per year.

You need a porfolio loan. These small banks use their own money and hold it in their own portfolio (hence the name), so they don't need to confirm the loan to sell to secondary markets.

I've called around to about 30 banks until I found the right one. As of now the terms we are getting are: 80% LTV (APPRAISED value not purchase), 20 year am, 5 year arm (stays fixed for 5 years then adjust to prime plus 2)

There's Pros/Cons to Portfolio Money

Pros:

-LTV on Appraisal (no money left in the deal if you keep in within the 75-80 LTV)

-No seasoning

-Relationship based so they are generally easier to work with. They also understand REI and what you're trying to do.

-No limit on number of properties. You can even get a blanket loan to include several properties under one loan number.

Cons:

-Higher Interest and shorter amortization. This makes it hard to cash flow. Portfolio loans are essentially commercial loans being used for residential property so no wonder it's hard to cash flow. 

-Interest rates will likely increase.

-Cash-out refis usually have slightly higher closing cost.

-It can be hard to find a lender to does these or even knows what you're talking about.

-You will still need to fill out an application, personal financial statement, have good credit and DTI . If you don't have those than you will need to find an equity partner.

Please fill free to send me a PM if you have any questions!