Buy, Rehab, Refi
I have been doing the "traditional" Buy, Rehab, then Sell...but I am considering "cash out"refinancing and rent as an alternative. Now days, you can get an "Interest Only" mortgage which makes renting more attractive from the income side. And, if one takes cash out on the refi, it seems a win, win. So, my question is, "Has anyone been using this approach, and if so, what can you tell me about it?...any difficulties with the cash out refi?" :-?
That is my approach. I have moved to Leasing with Option. After a few flips my accountant told me to hold for a year or more to move into long term cap gain. The short term rate was killing me. I have not found a bank that will lend Interest only. I checked- the cash flow would have helped on a property I just leased. I am having trouble getting a loan on property #4. I am doing REI full-time so income is inconsistent. Property cash flows.. but I have found that underwriters get nervous when you have several deals going...
We buy is right about taxes--they can kill your return. If you hold the property for less than a year, you pay tax on the gain at the short term rate (the rate you pay on other income--25, 28, 33%, etc. depending on income level). If you hold more than a year, you pay tax at the long term rate--15% IIRC.
Also, by holding for a year and renting you get whatever appreciation in the property and, presumably, some cash flow.
So, if you can cash out most of the way with a refi then hold for the remainder of the year, you can save some serious cash. The tax savings only multiplies if you do several projects a year. Good luck.
how do you get around the one year seasoning that banks like to see? I've been contacting banks and all I'm getting is they can't do anything until one year. I bought a property for $22K and put $7-$8K into the property and now its worth about $50K but the banks will only lend me the purchase price, until one year. Help!!!! I want to recoup what I got in the property and take out some for my hard work. Help....
It's usually six months now. If it is less than six months, they will use the purhcase price to base the value. It is conforming guideline, so if you are using sub prime or non conforming lenders, each lender and loan programs can have different guidelines.
Correct, most lenders will require the subject property to be seasoned for 12 months. Some non-conforming money sources will allow a 6-month seasoning and some will even entertain financing you the minute you take title. As with anything; the lower the seasoning period the more risk for the institutional investor, which always equates to higher fees & rates and lower LTVs. Most sources (Including conventional money sources) will however, allow you to finance your cost basis plus documented improvements made to the property. These improvements can include materials & LABOR. For the investor needing to free up capital in order to secure additional investments, the question is, “Is pulling out interim equity worth the additional cost?” For those fully leveraged, it may be if the right investment opportunity were on the table. Strike that, it almost usually is, just put a calculator to it. Last but not least, a bank is usually not the route to go for those seeking investment financing options, especially transactions with a twist such as this.
Hope to have helped & good luck.
[addsig]
I've bought 6 properties with in the last 12 months and had no problems getting loans based on FMV.
All the loans where with in 3 to 4 months of purchase and were cash outs as I paid cash on the front end.
There are mortgage brokers and banks that will work with you with out a 1 year seasoning. I like to deal with a small local bank, less trouble once they get to know you. By the way 2 loans were sold to major companies on the front end at closing, still no seasoning requirement. Good luck
I posted above that I was having trouble closing on a cash out mortgage on a rehab. I finally got the mortgage to close from a local Credit Union. The ended up demanding a 7 year balloon. The seasoning was no problem... just my proof of income. I have not found seasoning to be an issue. There are many lenders out there... mostly brokers with non-conforming that will refi cash out for low/no seasoning.
Cant you get a 125% LTV for house recently bought, regardless?
Also talk to a commercial banks BBO, there are better at handling these loans. My bank's BBO Refied 12 homes that a REI hand scatered out for a package, that saved him a lot of money, 10,000-ish