NJ (new jersey) · Member since 2019 · 39 posts · 9 votes
Hey everyone,
I'm not sure if I'm just having brain fart or something right now but how can I make sure that when I use a cash-out refi to exit a hard money loan, I'll have enough equity in the property to get back my money and then some?
Let's say the acquisition cost was $300,000, rehab cost is $125,000 and the property is projected to appraise for $600,000. So that's basically a $425,000 loan give or take some points/fees. Then once the rehab is done in about 6 months of financing $3,500 a month (totaling $21,000), the property appraises for $600,000 and I take the steps to do a cash-out refinance for 75% LTV which is $450,000. My loan balance with the hard money lender is probably around $400,000 at this point so will I be getting the difference of about $50,000 less closing costs/fees?
In your example yes...but your math is off. Your $3500/mo is either interest only (usually) , or even if it is amortized the majority of that is interest. So your payoff will be 425k leaving you with 25K coming back. Maybe a couple thousand extra if the loan was amortized, but no where near the 50K in your example.
In your example yes...but your math is off. Your $3500/mo is either interest only (usually) , or even if it is amortized the majority of that is interest. So your payoff will be 425k leaving you with 25K coming back. Maybe a couple thousand extra if the loan was amortized, but no where near the 50K in your example.
@Jobee Vincent Buenaventura the math is pretty right conceptually....but how do you know that you qualify for such a thing? This is why we preach to get prequalified. Being prequalified will tell you what math to use ahead of time. What if you can only refinance 70% LTV? Or what if you can refinance 80%? Then your numbers would be different which might affect how you make your offer as well. Being prequalified should be free to do so there's no real drawback to being prequalified. But reach out to a good lender and get these numbers specifically and it will help you with the math as well. Hope all of that makes sense.
@Andrew Postell I have cash-out refinanced only one other time and I saw that I was qualified for up to 80%. I was just using 75% as a conservative number. Unless every situation and property is different, but I’ve been going by my past experience.
However, this is my first time using hard money and it does sound prudent of me to contact my lender about it. I wouldn’t want to be stuck with that hard money interest rate for more than needed. So I will look into it, thanks!
@Scott Winter thank you! Ideally I am looking to gain from the refi. As the $125,000 rehab cost and $600,000 ARV is also a conservative number because it may even appraise up to $625,000. We shall see. I am still a beginner without large capital reserves so I'm very wary of minimizing risks where I can.
Hopefully they will accept my offer. The property is in preforeclosure and the seller may be a bit stubborn still trying to sell a distressed property for market value. Been on the market for 3 months now.