Cashout Refinance

[Nick Zocher]

Hi All,

I'd like to get some clarity on the Cashout Refinance strategy.

I recently listened to a Podcast (Show # Late 50's or early 60's) where @Brandon Turner mentioned that his strategy to buy several properties fast was to buy properties at a discount, rent and let them ride for a few months, and then have property re-appraised at a much higher price, refinance and recapture his capital to use on the next property.

I'm really interested in this strategy, so I began to do some research. A lot of the articles I'm reading mention that this is the "Delayed Financing Program" and only applies to all-cash buyers.

Other articles mention that a major key in order to be approved for the refinance is a large amount of equity in the home.

I don't believe Brandon did all-cash buys, or had great amounts of equity in these homes after only a few months.

Can anyone clarify how to properly use this strategy?

Many thanks!

Nick

[Chris Mason]

Hi @Nick Zocher,

It's rare that anyone does this, but in theory you can...

1) Buy using a normal mortgage, typically a 30 year fixed with a jacked up rate and fat lender credit.

2) Not wait six months.

3) Do your improvements to make ARV the current actual value.

4) Cash out refinance with hard money or a friend or whatever. There will be points... good thing you took that lender credit on the last one, to cover them. Private lenders can do whatever the heck they want provided that they don't do so many mortgages per year that they must get licensed, etc.

5) Refinance that hard money into Fannie/Freddie... as a rate and term refinance that has no waiting period. 

So your rate will go from high, to hard money... to low/normal. But you regained access to your capital/equity in less than six months. I may just charge some nominal consulting fee on that middle loan if you hit me up for this, to protect against me doing a bunch of work only for you to call 1-800 Quicken at the last minute to save $384 in closing costs on the end/permanent financing.

If you find a fellow REI that is like-minded, you can take turns being hard money lenders for each other. The points will be a wash big-picture because you're just paying them back and forth between the two of you to check a stupid Fannie Mae box and dodge the 6 month wait.

Again, not commonly done. But it is one way around that six month thing. Points on the hard money will often mean it does not make sense unless you work something out with someone that'll be trading you points as described above.