Cashing Out By Refinancing
Will someone please clarify to me the concept of refinancing then cashing out??
I sort of have an idea of how it starts out, but Im still unsure of how I am able to pocket my profits by taking out a loan-to-value against the ARV....for instance.....
Say I borrow 50k for the acquisition and renovation of a fixer-upper. In a perfect world, let's pretend I am able to raise its value to say 100k. Now lets say I refi and do a 80/20 Loan to Value in which the bank issues me a check for $80,000 w/ which I immediately repay my 50k loan. Now here's where things get a little foggy to me. I now have exactly 30k in pocket. But I still owe the bank....ummm...I think I may have answered my own question you guys. Am I correct in assuming that after I sell the home for 100k, I would then repay the loan of $80,000??? Someone helllppp!!! 
Cashing out on a refi is simply borrowing against the equity in the property. You cant get the money and continue to own it without paying on the loan......so yes you did kind of answer your own question......it does cost money to refi so if you plan on selling then I would bypass the refi
B[ Edited by BMan on Date 03/01/2004 ]
This is what I am doing, but I plan to rent the properties. Is this something that is common? I figure I can use the cashout money for other investments.
What are somethings to watch out for with cashout refinancing, then renting?
I'm pretty confident this is going to work out great, but I'd like to be ready...just in case there is something I didnt take into consideration.
JB
[addsig]
yes, this is common. It is a way to be able to keep buying properties and get your money back to use again.
Things to consider when you want to cashout:
1. Ask the mortgage broker/lender how long you must have owned the house before you cash out.
2. If you have had the house listed on MLS for sale within the last 6 months, you also may be turned down.
3. Find out if the lender will do a cashout for investor's property.
I recently went through this process. I made several inquiries about cashout after I saw lenders advertising cashouts for 80 to 90%.
Also, most importantly, when you speak to a lender or mortgage broker, generally you are told "they do it all the time". I shared all my info right up front with each of them and explained I was using the money to invest in another property. Three days before closing, the "sure thing" went sour. It seems when you cash out, some lenders want to pay off bills for you (like credit cards or school loans) rather than pay you cash. Make sure you ask about the terms of the cashout. Good luck.
I have learned much about the integrity of people in this business--I have always heard jokes about car salesman's integrity. Hate to stereotype--but I believe car salesmen have met their match in mortgage brokers!
Quote:
On 2004-03-14 20:49, jtmhomebuyers wrote:
Things to consider when you want to cashout:
1. Ask the mortgage broker/lender how long you must have owned the house before you cash out.
2. If you have had the house listed on MLS for sale within the last 6 months, you also may be turned down.
3. Find out if the lender will do a cashout for investor's property.
I recently went through this process. I made several inquiries about cashout after I saw lenders advertising cashouts for 80 to 90%.
Also, most importantly, when you speak to a lender or mortgage broker, generally you are told "they do it all the time". I shared all my info right up front with each of them and explained I was using the money to invest in another property. Three days before closing, the "sure thing" went sour. It seems when you cash out, some lenders want to pay off bills for you (like credit cards or school loans) rather than pay you cash. Make sure you ask about the terms of the cashout. Good luck.
I have learned much about the integrity of people in this business--I have always heard jokes about car salesman's integrity. Hate to stereotype--but I believe car salesmen have met their match in mortgage brokers!
Actually I am going to cashout at closing when I purchase the property. Something I have never heard of before...but someone was nice enough to show me.
JB
[addsig]
I may be just a newbie here, but pulling equity out of a house you just bought, and then renting it out, has some risk attached to it. If rental rates for the area go down, and you don't have much of a cashflow "cushion", you could go into negative cashflow. Still may not be a big deal if you only have a couple properties.
But if you have several to many properties, all highly leveraged, because you made a lot of deals in a short time period, and you have little to no reserves, a short dip in rents, or periods of vacancy could have devastating consequences.
By selling the property, and putting that cash in the bank to build up your reserves, you lock in the profit, and create "insurance" in case of bad times ahead. If you already have cash reserves, ignore what I just said.
Now this is coming from a newbie that has only bought one house in the past. (that I overpaid for, and was stuck for 7 years until appreciation kicked in last year. ) I'm just thinking logically here. As with any business, there are pitfalls in growing too fast.
Getting cash back at closing on the purchase money can be done if you have a lender who is loaning against the ARV instead of the lesser of sales price/current value.
Some lenders will want to dole it out to you as repairs are made. Others (if there is still some equity in the deal) will give you a lump sum.
Would it be wise to do a refi on a property that you are having difficulty retailing?
For example:
House worth 110K
Owe 64,500 (bought sub 2 few months ago)
Been trying to retail it to a cash buyer for about 2 months without luck.
If it were possible to get a loan on this would there be a way to keep the loan out of my personal name?
Are there lenders that will lend based on the property and loan to a corporation?
The property is now in great condition and needs zero in work.
Thanks in advance.
Why doesn't sale? I know in my area, places are going like hotcakes! Think about using a Realtor or put some free ADs on the FSBO websites!
Lance
JBinvestor,
What are you trying to accomplish with cashout at closing? I haven't tried it that way, but almost certainly you will have to pay a higher interest rate than if you first rehabbed the house. It sounds like you are going to keep the house as a long term rental so lowering your interest rate would be important as far as cashflow is concerned. It's just a suggestion, but I would consider buying the house with whatever low cost means you might have such as HELOC, cash, partners, etc. and then doing a 70% cashout. refi. That should give you a good interest rate, better cashflow, and nice cushion if rental rates falter.