Cash out question for you all

[Sochima Eze]

I’m in an excellent equity position of one of my rentals and would like to do a cash out refi, but I’m running into trouble with traditional lenders. I understand it’s looked at as risky, not a primary residence and a duplex with renters, but I’m sure there’s a way to make This happen.

Any insight would be appreciated.

[Albert Bui]

Originally posted by @Sochima Eze:

@Stephanie P. I’ve got a all with the lender scheduled in an hour or so, but I’m beginning to wonder if I’m simply being pushed in a particular direction here. Given the homes value and it being a simple cash out refi, I don’t understand the issue myself.

 HI Sochima,

On Conventional, financing a duplex that is investment or non owner has a max. cash out of 70% and income to qualify is calculated much different than on a commercial loan (debt coverage ratio DCR). On Residential Conventional there are advantages that you should know of, which are:

- takes into account your other personal income sources to qualify and why this is so huge is that the property doesnt need to necessarily cashflow in a way that a commercial DCR model would require.

- your max loan sizing can up to 70-75% of your appraisal on investment cashout and is NOT limited by cashflow however the cashflow you do file or can document with your lease agreements or taxes will help offset and help you qualify for the cashout as well

- cash out is 6 months title seasoning through your name personally or through entities you controlled a majority stake in (51% or over)

The down side on residential conventional financing is that you can only finance the properties in your personal name at closing or your living trust. 

I use both as a RE investor between commercial and residential as both can be used on 1-4 unit properties (non owner/investment occupancy).

The pro's of commercial/portfolio financing from local credit unions and community banks are that you can:

- talk to a local banker/lender who is interested in building a relationship with you over time and is flexible to make a loan as long as its financially prudent and you show a track record

- ability to build a track record with

- less documentation scrutiny than a fannie/freddie conventional loan which is more ridged because it needs to be sold to the secondary market so all boxes must be checked to do so (otherwise the loan is unsellable or undeliverable)

- is cashflow based via debt coverage ratio or DCR method of qualification (Net operating income / debt service)

- can fund to LLC's, entities, and businesses with personal guarantee (PG) usually

- can do unique loans like cross collateral or blanket notes across an entire portfolio, can do rehab/construction + permanent financing into one (one time close products), can do soft liens and releasable upon progress on your projects so you can leverage equity with temporarily encumbrances, unique disbursements on credit facilities,etc 

Hope that helped compare the cash out options.