2nd Delayed Financing Worked Like a Charm

[Daren H.]

So I recently purchased another rental property (3bed, 2bth, built 2003, ~1300sqft). I purchased it for cash for $68K (tenant occupied, will get to this later). I put about ~$3k into the rehab and about 2-3 weeks started the delayed finance. I got the appraisal report back and it appraised for $112K. With the delayed financing I was able to get a loan for $73.6K (includes rolling in closing costs, prepaids, etc.) with conventional financing @ 30 year, 4.5%.I will collect ~$3,800 in rent before my first payment. I will be in the property for almost nothing out of pocket.On top of that, I used my 0% interest credit card offer to purchase it (my hard money lender, lol). It cost me ~$1,600.

I figured the rent comps at ~$1,050, the appraiser’s rent survey as part of the refinance figured it at ~$1,100 so this confirmed I was in the right ball park. The current tenant is only paying $850. She is a Section 8 tenant with a 2 bedroom voucher. The house is a 3 bedroom, 2 bath. She was paying the prior owner $100 outside of Section 8’s $850 but I do not want to go there. I plan to let the tenant stay until ~ May 2017 timeframe and then I will look at re-leasing closer to market rent (during better renting season). The tenant does not appear to be a bad one. Other than yard maintenance, the house was in good shape after 5 years of tenancy. I painted, did minor repairs and updates to help the appraisal.

Delayed financing is perfect when you buy a rental property at a good discount that does not require much in repairs. Depending on the number of properties you have, you can get a loan for 70%-75% of the new appraised value, or the full purchase price plus closing related costs, whichever is less. You can start the delayed financing the next day after purchase or after your rehab. Delayed financing would not be as favorable if you are planning an extensive and costly rehab because you do not get to include the rehab costs in the loan and you have to complete the delayed financing within 6 months. Can’t wait for my 2nd Subject-To deal!

[Daren H.]

@Christopher Hutchins

For the past couple of years I have requested a credit limit increase about every year. That is how I got the limits up. I maintain 3 cards with ~$125K available credit. Call your card provider and ask them about zero 0% offers, balance transfers, etc. They can tell you if you can use the offer via a direct cash deposit to your checking account. Takes about 2-3 days for the cash. Some cards won’t do this.

Delayed financing in a nutshell allows a buyer to purchase a home with cash, perform the home repairs, and then do a cash-out refinance to recapture the money used to make the purchase (you do not get the repair cost back). The lender will require an appraisal of the property and will give you a loan for 70% or 75% of the appraised value, depending on how many financed properties you currently own. You don't have to wait for 6 months of seasoning (ownership). As I pointed out earlier, it works best when you can swoop in with cash, purchase at a good discount, and not have to make expensive repairs. You can get most or all of your money back out and still own the property.

I would not advise this method unless the person has some experience or access to someone experienced with running the numbers, property valuation, rehabs, etc. You have to be fairly certain that the After Repair Value at 70%-75% will pay you back in full (plus closing costs if possible) so you can satisfy the credit card balances.

For more info on Delayed Financing check out or just search right here on BP.