Cash to refinance - confused

[Amaf J.]

Hello everyone,

I have a quick question based on a scenario that I'm going through right now and I was looking for some help.

I'm working with a local investor in the area that purchases homes for other investors. He found a property for $33,000 in distressed condition. It's going to take about $14,000 in repairs to fix it up to get rental ready. After repairing the single family house, it will rent for around $1,100 a month. So we're looking at $47,000 all in with repairs and the comp's are showing the houses in the area selling for around $75,000. 

The investor knows a local bank that provides commercial blanket loans for portfolios on a 20-year loan. They give 80% of the assessed value of the home after the repair.

Now if I use all cash and leverage re-financing after the repair, how does this all play out, number wise?

The bank gives 80% of the $75,000 which comes out to $60,000 which is well below what I have in it. It's about $13,000 profit or equity in the deal. Now do I have the ability to cash out that full $60,000? And just pay the mortgage on the $60,000? I'm trying to make this beneficial to use leverage after the repairs and use the funds towards another purchase. Any insight would help me out tremendously. 

[Joe Villeneuve]

Originally posted by @Amaf J.:

Hello everyone,

I have a quick question based on a scenario that I'm going through right now and I was looking for some help.

I'm working with a local investor in the area that purchases homes for other investors. He found a property for $33,000 in distressed condition. It's going to take about $14,000 in repairs to fix it up to get rental ready. After repairing the single family house, it will rent for around $1,100 a month. So we're looking at $47,000 all in with repairs and the comp's are showing the houses in the area selling for around $75,000. 

The investor knows a local bank that provides commercial blanket loans for portfolios on a 20-year loan. They give 80% of the assessed value of the home after the repair.

Now if I use all cash and leverage re-financing after the repair, how does this all play out, number wise?

The bank gives 80% of the $75,000 which comes out to $60,000 which is well below what I have in it. It's about $13,000 profit or equity in the deal. Now do I have the ability to cash out that full $60,000? And just pay the mortgage on the $60,000? I'm trying to make this beneficial to use leverage after the repairs and use the funds towards another purchase. Any insight would help me out tremendously. 

 If I'm reading this right, you need to change the batteries in your calculator.

$33,000   Cost to Buy
$14,000   Repairs
$47,000   Total Cost

$75,000 ARV
$60,000   80% ARV (Refi loan)
$47,000   Cash in
$13,000   Cash OUT (as in profit built into the loan)

You're not upside down.  If the property cash flows with the loan in place, this is the perfect scenario.

Take the $60k,...and invest it in the next property, and repeat what you did with the first.

Then do it again, and again, and...