Financing / Refinancing Question

[Alden Cleveland]

I was just told by a mortgage professional that, 'If it’s a single family home, you can take cash out of the property up to 75% of the original purchase price you paid in cash'.

The questions was, "if I purchase a rental property with my cash, instead of Hard Money, and I decide to re-fi the house, how much cash can I get back out?"

Everything I read about the BRRRR strategy says, 'you can get your money back, and maybe even more, based upon the value of the rehab'd property'...this seems to fly in the face of the strategies efficacy.

Any guidance appreciated - 

[Tony Castronovo]

@Alden Cleveland you might do some further research on Bigger Pockets on this topic as I am no expert, but recall running across some helpful information here several years back. What it sounds like is that the mortgage professional you spoke with was suggesting that you could get a 75% LTC (loan to cost) loan on the property to replace the cash you put into the property. That's not really the BRRRR model though. You really want 75% LTV (loan to value) because you will be raising the value through forced appreciation following the renovation.

Also, seasoning requirements are different (as far as I recall) if you are replacing cash vs. another loan. When I was in the single family space I would refinance properties in under 90 days (my fastest was 43 days). The model was to purchase with either a hard money loan or private money loan...use my own funds to cover the renovation...then refinance based on the new appraised value. My typical scenario was to purchase around $100-110k, put around $20k into the rehab, then refinance based on new ARV (after repair value) which was usually around $160k. It was a great model that allowed me to build a SFH portfolio rather quickly.

Yes, you will have HML costs, but you just build it into the model...the cost of doing business. Many HML's have "landlord loan" programs where they will first loan you the money for the acquisition, then refinance you into a long-term conventional loan. There are alot of good programs / loan products catered to this...or you can manage it on your own. For me the best model was to have a private lender then seek my own conventional financing. I guaranteed them 90 days of interest and could close within days.