How soon can I refinance?

Question

Hi everyone. I'm planning to buy rental properties in Baltimore, MD and nearby areas. And I really concern about the refinancing, because my capital is limited. I have a few questions:

1) How soon can I refinance after renting out the property?

2) Will any lenders/ banks let me refinance based on only the rental income of the house? (I don't have a job now). I really appreciate if I can receive some referrals to those lenders/banks.

3) How to add more value to a property which is bought at the market value? Are there any ways to make sure the appraisal for the refinancing will come at a higher value than the purchase price?

Thank you!

Andrew Hinton · Answer

Hi Vee Vu,Hope you are enjoying your time in Baltimore, MD. I've been investing in Baltimore rentals for two years and also working full-time developing (first flipping and now on to bigger commercial projects). It's a blast, but you need to be careful when you are starting out. In this city, there are as many shady characters as really good people, and it takes some time to figure out who you can trust with your moneyYou mentioned capital is limited, but sounds like you have time on your hands. Flipping might be a good place to start and will improve your income situation, making you a more appealing investment to the banker. You may also join with other investors on a limited scale to grow your money and learn about Baltimore's rental marketVery happy to discuss in more detail if you are looking for someone to talk to! -Andrew

Philip Williams · Answer

Hi I think some people are presenting a rosier picture than is typically the case. Banks hate investors without W-2 income! I always thought the deals came first but even commercial bankers want to see a global debt before proceeding any further. Do you perhaps have a partner on the deal who can bring some W-2 income to the table? I have found this to be immensely helpful. I spend time finding the deals and when it comes to the financing I have a solid partner the bank considers having a "real job"

Ola Dantis · Answer

@Vee Vu Hey Vee, most people usually wait a year or two after they have stabilized their asset, meaning completed any renovations and/or escalated rents.

Now, your situation is a little different because part of the REFi process is taking into consideration your income; however, some lenders might be welcoming to non W2 income, for instance, if you are 1099, it all depends on the lender really.

Since you are invested out of state, it might be wise to find someone with boots-on-the-ground who focuses on the RE strategy: Buy and Hold rentals that you are considering. This is very important, as you want to minimize any risks associated with investing out-of-state. There is a good book called Long Distance Investing, so you might want to check it out.

Hope this helps, Vee. Goodluck. Thanks! - Ola

David Fernandez · Answer

@Vee Vu, I talked with banks before and after I bought my first property.

Before I bought my first property in Baltimore City my main focus when talking to bankers was to network. I met a few of them at the different REIAs that are organized there and just talked about the market, the products they have, what do they look for when working with an investor, explain them who I was, what I did before (I came from another market), and what my goals are. After buying my first property, I reached out to those connections (and called many more!) and we talked about the deal and terms. Now, I keep in touch regularly with a couple of bankers I work with.

David Fernandez · Answer

Hi @Vee Vu

1) Most banks will require a 6-12 month seasoning; however, I work with a couple of local banks in Baltimore City that do not require seasoning (one lends up to the lesser value of 70% of the purchase price + rehab cost or appraised value. the other lends 70-75% of the as-completed value). I didn't get this the first time I walked in with my first property, but you can find a bank that will work with you. Call as many as you can.

Other option is going with a HML, They are expensive, but you will have the ability to use minimal funds and have more available to buy more deals. If you factor the cost in your analysis, you know that you can be out in 6-12 months (make sure you can refi)

2) Most banks will probably ask you for a network higher than the loan amount and income (W-2, 1099, rental income) to protect the loan payments when the property is vacant.

Do you know anybody with a steady income that can be the guarantor on the loan? This will be enough for most banks.

3) The appraisal just won't come much higher than a property bought at market value. You need to either improve something or get creative to buy under market value (or both!).

Good luck!

Ozzy Sirimsi · Answer

2- You gotta have multiple houses with huge cash flow. One house will not cut it.

3- You gotta improve something in the house, but make sure you do don't over do it.

Good Luck!!!

Evan Roberts · Answer

if you don’t have a job then you’ll likely not be able to get past a seasoning period on the loan. Some lenders would let you refi if your global cash flow can support the debt but that requires income from multiple sources (w2 income, other rentals, etc). Also, given your out of state you’ll likely struggle to buy houses at a significant discount and force the value you need to ensure a cash out refi and also depends where you buy as there are many lenders who won’t touch certain parts of the city.

Jojo Olaseha · Answer

I always suggest waiting a year (at least) that way you can pul out the full value of the home not just the amount you paid for the property. oh and Santana Brown at First Home mortgage is the best lender in Maryland.

Eric G. · Answer

Care to drop a name or two from decent lenders you've had good experiences with? I'm always looking to reach out to potential lenders.

-Eric

Vee Vu · Answer

Thanks @David Fernandez. Did you talk to lenders/banks about the refinancing before you actually buy and rehab a house, or after rehab and rent it out?

How soon can I refinance?

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