How to avoid cash out seasoning requirements?

[Christopher Beahm]

Creative Financing Strategy: How to avoid cash out seasoning requirements?

As a lender this is one of the most commonly asked questions that I get from investors looking to get cash back out of their recently purchased properties.

This method has a few extra steps involved and is more geared towards the experienced investor, but when used appropriately, it offers several advantages. Below is a very high-level explanation.

Create an LLC for your real estate business --> Connect with a local hard money lender to borrow the cash needed to fund your future real estate endeavors {assuming you don't have the assets needed for initial purchase and /or repairs} -->Use the cash from the hard money lender to buy the property in cash --> At the time of closing, have your LLC file a mortgage note against the subject property for the amount borrowed from the hard money lender --> start the refinance process the day after closing on the subject property to recoup your investment / pay back any hard money loans as needed

In this scenario, technically you as the borrower will not receive any funds back at closing, however, you as the mortgage note holder of which your LLC holds 100% interest will be satisfied in full at closing. You're paid back through the LLC rather than as the mortgage borrower.

Benefits? This scenario is not treated as a cash out refinance, it's a rate term refi. 1) Interest rates and loan terms for non-cash out refinances will always be superior 2) No seasoning requirements. 3) Maximum LTV can be based on ARV rather than initial purchase price.