Cash out refinance success

[William Allen]

I wanted to post the story of a rental house that we purchased a few months ago and just got done with a cash out refinance.  The numbers are great and I think they will give some of you the motivation needed to pull the trigger on a similar property.  

House is a 4/3 in a gated community. It was a HUD foreclosure and the previous model home in a community that is still building new construction homes. The area is dominated by military, health care, and some executive rentals.

The purchase price was $185k and we put just under $5k into the home for closing costs and light renovations (paint, cleaning, gutters, fridge).  Cash purchase all in at $190k.  

We rented the house out immediately on a long term lease at $1775/month with the tenant responsible for all utilities and lawn maintenance.   So, this house was just under the 1% rule which is what I shoot for in my upscale rental properties.  However, the rent will increase 3% per year so we will get there in about 2 years.  

I contacted my online lender after 2 months of purchase and got the cash out process going, the house appraised at $265k and at 70% LTV I was able to pull out $185,500 on my cash out with no origination fee, 4.5% APR, 30 year am, and $1k lender credit at closing.

So, we now have about $5,500 into the house (due to closing costs) and it is cash flowing at just over $300/month once maintenance, capex and vacancies are included.  I currently self manage our properties but that would drop the cash flow in the future when they all get passed over to PM.

I did need the upfront cash and had to find the deal but for a little bit out of pocket we were able to add a great cash flowing property to our inventory.  And, the day after closing we bought another one with the cash!  

The deals are out there, anyone else have a similar story?

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[Gino Barbaro]

@William Allen@Jake Stenziano

Hi William

Great deal.  My partners and I have had success with all of our purchases the past two years.  Our business plan is to buy underperforming multis from burned out motivated sellers.  Our first purchase was a 25 unit property.  We purchased a 136 unit for 4.075 million in feb 2014 that was grossing 50,000 per month with about 30 vacancies.  In 12 months we were able to increase revenue to 85,000 per month through rent increases, fees just by taking care of deferred maintenance and offering great customer service

We went to the bank in December 2014 and tried to refi.  They could not believe the performance of the property and came in with a 5.7 million appraisal which we new was too low.  We struggled for 8 more months until a local bank came in with a 6.5 million dollar appraisal, and we cashed out 1. 6 million dollars 

My mentor told me the way to wealth is to go as big as possible and I did not believe him until this deal.  In business the more peopl you serve the wealthier you will become and it is true in renting to tenants

We are in the process of refinancing our smaller properties, but this would not have been possible if we did not buy right 

Good luck

Gino