All Forum Posts by: Cory LaChance

So, I dug into it a little more and I think the mortgage broker is wrong. Looking at the Fannie Mae website, I found the following requirements:

Cash-out refinance transactions must meet the following requirements:

• The transaction must be used to pay off existing mortgages by obtaining a new first mortgage secured by the same property or be a new mortgage on a property that does not have a mortgage lien against it.
• Properties listed for sale in the six months preceding the disbursement date of the new mortgage loan are limited to 70% LTV, CLTV, and HCLTV ratios (or less if mandated by the specific product, occupancy, or property type – for example, 65% for manufactured homes).

  Note: Properties that were listed for sale must have been taken off the market on or before the disbursement date of the new mortgage loan.

• The property must have been purchased (or acquired) by the borrower at least six months prior to the disbursement date of the new mortgage loan except for the following:
  • There is no waiting period if the lender documents that the borrower acquired the property through an inheritance or was legally awarded the property (divorce, separation, or dissolution of a domestic partnership).
  • The delayed financing requirements are met. See Delayed Financing Exception below.

I may have answered my own question... 

We inherited my Mother in Law's house after she passed away. I want to add it to our rental portfolio. The balance on the mortgage is a little less than $40K and the value is around $175K. I want to refinance the property and pull out some cash ($60K) to use for future purchases. The mortgage broker we spoke to said that we couldn't refinance the house until we own it for 6 months (I assume for the seasoning requirements). I could understand the seasoning if we bought the property, but we inherited the property and the note that comes with it. I'm afraid the bank who holds the note (BOFA) could find out and call the note due. Does anyone have any advice to proceed with a cash out refinance? Thanks.

Hey Tony. I'm right down the road from you in Lake Jackson. I've employed the BRRRR method a couple times and I am now working on my 6th property. Were you able to refinance these under the 6 month mark? Those are pretty good rates on the refinance. I have been having trouble locating favorable refinance rates on my projects. The one I just finished up is financed through a local bank at 20 years and 6.5%. And it doesn't seem that I could get any lower than that. If I may ask, who did you go for your refinance?

@Patrick Liska - I am still waiting on the premiums with the higher deductibles. So that will lower the premiums for my analysis. As for my other properties; they are all landlord policies through Allstate and they cover lost rents in case of a loss. Allstate won't insure my property owned by the LLC; which is why I'm shopping it out. I do have an umbrella policy for the properties owned personally.

@Colleen F. - There are quite a few coverages on the policy and terrorism is one of them. They don't ave itemized prices on them, they only say "included" on the quote. I'll definitely ask the agent if those things can be taken off.

So I am planning on putting my next purchased property under my LLC. I am shopping for insurance and I'm a little sticker shocked. The quotes are coming in around 3 to 4 times the price of my other properties (I have 4 others that are owned under my personal name). Insurance is fairly expensive where I live due to the windstorm requirements and lenders require coverage.

I was quoted $910 for hazard and $1,100 for windstorm. The replacement value is $99,000 with $300k of liability.

The property is a 2 bed 1 bath and I plan to rent for $875ish and I'll have it mortgaged around $50k when I refinance it. ARV will be around $75k

These premiums were based on replacement value and 1% deductibles. I am going to increase the deductibles, but I am not sure if I should lower the replacement to actual cash value. Doing so will exclude lost rent in case of a loss.

Any input to what others do for their rentals is appreciated. Would you sacrifice lost rent for a lower premium?

Hey @David Durall, I live in Lake Jackson and you are correct with the amount of work coming in to town. Real estate has been booming the last 2 years or so. I have a 5 properties in the area and working on a couple more, all single families (3-2's & 3-1's) and none of them rent for $2,200. Do you currently have your property rented at that price or did someone tell you you could get that price? There are only a handful of condominiums in town and most are class c type property. Also keep in mind that there are currently 5 apartment projects going on right now within 10 miles of each other. The total units added to the market is around 1,000. The most recent to come onlin is renting a 1 bedroom for $1,250; and these a very nice apartments (Granite counters, stainless appliances...)  Anyways, if you have any questions about the area, feel free to ask. I was born and raised here and know the area very well. 

Hey Matt,

I live in Lake Jackson also and am currently rehabbing my 4th rental property. I've been at it for a little over a year now, so I still have a lot of questions myself. But I'd be happy to try and answer any questions you may have. I was born and raised here and know the market and area very well. If you ever have any questions don't hesitate to ask. I'll help in anyway I can.

Yup... That's what I did and many folks on bigger pockets have done too.

Ask around. When you find one, ask if they will give a secured line of credit on a rental property that you own free and clear. Make sure whatever bank you approach isn't a big chain bank. You want one the small local bank. 

I don't see why a secured LOC against your Free & Clear property won't serve your purpose. This is assuming you have enough equity in the F&C property. Also assuming that your new acquisition will be all in (Purchase cost + rehab cost + holding cost) at under 80% ARV because that is the limit the majority of lenders will loan.

Your plan sounds like it will require short term financing (Hard money, private money, secured LOC, ect..) to purchase and fix the property. The short term product will then be refinanced into a long term product (Portfolio loan, conventional mortgage, bank loan, ect..)

Chris summed it up perfectly, but a few things to add as I'm in a similar scenario.

I chose to go with a LOC instead of cashing out. This was because the LOC can sit idle waiting for me to pull the trigger on a property. With the REFI, I would have to make payments on the cash just sitting in my bank account. My LOC is secured through the F&C property at 80% LTV at 5% interest only payments for 1 year. After which, the same bank will refinance to a 20 year 5.5% long term portfolio loan. I now have 2 properties under the secured LOC. My 1st being F&C and the other is under the portfolio loan. And with each property I get, I can add the equity to the LOC. I did have to create an LLC in order to go the commercial route, but that was in my long term plan so it was nice to get that out of the way.

I must say that there is absolutely no way I would have done this without the help of my local bank. It was their idea to not REFI and go with the LOC. I ended up with a lot more buying power with the LOC, rather than the REFI as well. Also, the commercial side is SO much easier to deal with than conventional. All decisions are made in house without the government red tape.