Investor · Butler, NJ · Member since 2016 · 17 posts · 1 vote
I have just won a bid for a rental home for $385,000. I have a lot of cash, but believe getting private funding until I can refi is a good strategy. There are minimal repairs required so can rent it withing a week of purchase. Here are my questions:
- How much cash should I use? I could feasibly do 70%- but should I?
- How do I evaluate private lenders? Any recommendations?
- How long of a duration of loan should I take? I can refi in Feb, what is normal time range?
Rental Property Investor · Malvern, PA · Member since 2016 · 1k+ posts · 936 votes
10y
I like to refi with a traditional mortgage unless you have a pressing need for the funds in the coming 6-12 months. You will pay for the funds once with the refi or twice if you finance privately, then with a refi. You can get a better refi rate by waiting 1 year after purchase, excluding market moves. Private funds will cost you more than a traditional refi with Fannie/Freddie.
I bought my last 2 properties with cash. I refi'd one a couple months ago after a 6 month hold with a 30 year fixed mortgage at 4.875% for 75% LTV. I have the second free and clear and will refi in December to 75% LTV.
Your "How much?" and "How long?" questions depend on your financial plans, risk tolerance and cash flows needs. My approach was to maximize my cash-on-cash return, so I financed 75%. You could go with lower LTV if you want to maintain more equity in the property and reduce your monthly payments. That reduces your risk and improves your sleep for those times when you are charging vacancy. It also makes it more expensive to access that leftover equity if you want it (new refi or HELOC).