Pulling out equity of house purchased with cash during rehab

[Samuel Watts]

Hello! I currently have 2 houses I have purchased with cash and have just started renovations. I have enough cash to complete the flips but would like to pull my equity out now so that I can purchase more properties and keep the ball rolling, instead of waiting for the properties to close to free up funds. 

I have talked with quite a few lenders in my area about doing cash-out refinances or lines of credit on the properties but it has been tough finding a lender to lend on properties that I don't intend to hold as thats where they make their money back. 

Is anyone else doing something similar to free up their money without using a hard money lender? One lender I have spoke to is willing to do it for 1% of the loan value plus appraisal and recording fees. This is pretty good but I wanted to see if anyone else is doing something similar. 

[David N.]

The credit line is a good idea for future projects. You can leverage your own capital up to 5 times in most cases -meaning if you have $100k in liquid assets. You can get approved for a credit line of up to $500k. 

The fix and flip credit line doesn't work like a HELOC. The lender controls the draws, but assuming good credit. You can borrow 90% of the as-is purchase price (LTC), and therefore you only need 10% of your own capital down to purchase the asset.

And most lenders will fund 100% of the renovation, but typically on a reimbursement basis -meaning you complete the work up to a certain percentage. The lender inspects the property to confirm then wires the funds to your account. The total loan of acquisition (LTC), and rehab budget typically can't exceed 70% after repair value (ARV).

You can expect to pay 2% points per deal, but your capital is not tied up in the project, and you have more buying power. You can get into bigger projects or more projects by leveraging your capital -don't get hung up on the points. Think big picture. If the line allows you to do more projects or bigger projects your bottom line will be bigger even if you are paying points to use the credit line. 

I wish you much more continued success. 

Sincerely,

Dave