Equity Stripping: Heloc vs Mortgage

[Ryan Cunningham]

I'm going to be purchasing my first rental properties in the next couple months with hard money loans. I would like to pull equity out soon after to pay back the loans and lower my monthly debt payments. I know that 2 of the most common methods for this are mortgages and helocs. 

My question is this: How soon are banks/lenders willing to offer these services? Are these available on any properties I own or do they typically need a "seasoning" period of a certain amount of time before I can pull equity out of a property? 

[Andrew Postell]

@Ryan Cunningham thanks for the post here.  So if you buy the property with a loan, the lender (the hard money lender in this case) will place their lien on the deed.  This is important to understand because your next step is to refinance that loan.  So the new lender won't be giving you the money to pay back the hard money lender, they will be cutting that check to the hard money lender themselves.

I say all of this because we now need to know "how much will your new lender's Loan To Value (LTV) will be". Hang tight with me when we follow the numbers:

1. You need to know your After Repair Value (ARV)
2. You need to know what your total acquisition costs will be
3. You need to know what your total renovation costs will be
4. You need to know what your closing costs with your new lender will be
5. You need to know what your new lender's LTV will be

So if you buy a home for $50k, put $30k in renovations, have $5k in costs and the home is worth $100k...then your total acquisition costs are $85k.

If your next lender will lend 80% LTV and have $5k in costs, then that means you will need about $10,000 out of your own pocket to refinance!

And please understand the numbers are not important but the concept of those numbers is.  

Likewise, know that a "cash out" loan (where you actually receive cash) usually has a LOWER LTV than a "rate and term" loan (meaning, they just pay off the loan on the deed).

I would highly encourage you to be prequalified ahead of time so you know how to plan.

But do feel free to tag me and ask any additional questions.  Thanks!