All Forum Posts by: Gary Parilis

@Matthew M. Thanks for the clarification! Have you done this with a fairly large rehab cost? The lender I'm talking about it with says the underwriter would balk if it's too big.

@Matthew M. My question isn't about delayed financing itself, but about the ability to include the rehab costs on the HUD, in order to count it as part of the acquisition cost. Are you saying you've done that?

And here's the answer!

https://www.biggerpockets.com/...

@Colin Newton, have you found out more about this? I am tying to do the same thing. I saw the (excellent) post @Annchen Knodt refers to, but it does not address this nuance. It only states that the limit is the purchase price or 75% of ARV, whichever is lower. No mention of the "rehab costs in escrow" loophole.

There's no smoke and mirrors here. This is a typical BRRRR. The situation I'm describing is with numbers like the following. These are hypothetical.

Purchase $110k

Rehab $40k

Total acquisition cost $150k

Appraised at $215k after rehab

70% of $215k is $150k

I'd want a $50k mortgage, which would return 100% of my cash. I can certainly do that after 6 months, but the goal is to have it appraised and do that immediately after rehab. If purchased with cash, the delayed financing exception permits getting a mortgage right away, but the maximum loan amount (without waiting the seasoning period) is the purchase price. So I could only borrow $110k, and would have to leave $40k in... And then maybe refi for the whole $150k after seasoning.

I'm asking about a workaround to be able to borrow the $150k right away, by putting the $40k in escrow at the time of purchase.

In earlier discussions, I read about an obscure provision that makes it possible to do a full cash-out refinance immediately after purchase and rehab, without waiting the seasoning period and including the rehab costs in the acquisition cost, but I can't find the discussion.

Background:

1. In a BRRRR, if you purchase with a mortgage, you need to wait a seasoning period, typically 6 months, before you can do a cash-out refi.

2. The "delayed financing exception" allows you to obtain a cash-out mortgage immediately after rehab if you initially buy with cash. But this loan cannot be greater than the acquisition cost of the property (purchase price + closing costs), even if the ARV is large. This means you cannot get the rehab costs out for 6 months.

3. I have read in BP conversations that there is a way around that... If you buy with cash and put the rehab funds in escrow at the time of purchase, that amount can be included in the acquisition cost, and therefore it's possible to get a mortgage right after rehab for an amount equal to the full investment (assuming the ARV is big enough that the LTV is at least equal to that total acquisition cost).

Is anyone familiar with this approach? I'm certain I read it, but can't find it and need to validate its veracity... 

Thanks.

@Mike Ojo, I own a property in Daytona Beach and one in S. Daytona, both long-term rentals. Neither very close to the beach, though. I have been thinking about buying some property near the beach for STR, but haven't done much investigation yet. I'm happy to share with you what I know about the area and I'd love to find out what you learn.

I think you can trust the individual comps. I just wouldn't use the summary value they post.

@Deangelo Mack, those "trusted" sites aren't always accurate. In fact, they're often very far apart from each other. If I wanted a super rough ballpark, I guess the median (or mean) would be reasonable. But that's not nearly precise enough. Better to look for comps yourself. For instance go to the "neighborhood" section on the realtor.com listing and you may be able to find links to recently sold similar properties.

I am also 57, and am accelerating the growth of my portfolio. Low interest is exactly why a 30 year mortgage is so attractive right now! The objective is not to have your properties paid off. The objectives are cash flow and equity growth. The more properties you own, the more wealth you build. You can buy a lot more properties with 30 year loans than with 15 year loans -- and with rates so low there's very little cost to extend to 30 years. Leverage is what makes real estate such a great investment. 

Once a property is paid off, what do you plan to do with it? Personally, I'd refinance it to buy more real estate! Except that in 15 years you can bet you won't get a loan at these rates... So grab the longest loan period you can now, while the credit costs you almost nothing. If you want to, you always have the option of paying it off on a 15 year schedule. But again... Why? 

Perhaps you have an objective I don't have -- what do you need your properties paid off for?