Cash Out Refinance After Hard Money Under LLC

[HYB]

We are about to buy a property for 25k with an ARV around 60k. We are buying it with hard money and then looking to cash out refinance (80% LTV). Should we buy the property under our personal names, or is it possible to cash out refi with the LLC? Should we get our own appraisal before going through with the deal or does the bank want to use their own appraiser?

[andise84]

I believe the bank has its own appraisal, but that depends on the current market value.

[Andrew.Postell]

I saw this was an older post but the subject is so important that I felt it warranted a response.  If you purchase a home with a Hard Money Loan (HML) the HML will likely be lending to you 70%-80% of the ARV on the property.  It does depend on the lender, the property, and the exit strategy....meaning, how will the HML get their money back.  A flip is a treated just a little different than a buy-and-hold.  Since you are seeking to buy and hold it will likely be that a HML will lend you 70%-75% of the value.  This is important because when you refinance into a conventional mortgage you will be limited to 75% of the value of the property (if the property is a Single Family Home).  So right off the bat the loan won't be eligible for cash out refinancing anyway since you are already to the "Loan to Value" limit of a refinance (a purchase has a different LTV).  But for arguments sake, let say you did get this home at a steal and only financed 60% of the After Repair Value....you would actually have to wait 6 months to get cash out of the property with a conventional loan.  So it is the better plan to make sure that you have as little cash out of your pocket when using a HML.  If you purchase with cash there is an entirely different strategy. 

Also though, you could go over this 75% ARV rule with a "porfolio" loan.  A portfolio loan is a loan that comes from the bank's own portfolio of money.  A conventional loan is governed by Fannie Mae and Freddie Mac (if you recognize those names) and when you get a conventional loan it's not coming from the bank it's actually coming from those entities.  But since a portfolio loan will be governed by the bank itself that means that each and every bank has a different portfolio loan BUT it could go above the 75% ARV.  However, you will have a higher interest rate, or a variable rate, or maybe the term is a 20 year term...which would make your monthly payment higher, and etc.  I've actually seen some portfolio loans with all 3 of those differences on one loan.  Please DON'T hear what I'M not saying...I'm NOT saying portfolio loans are bad.  They are very good loans and help a lot of people.  But if someone says "my loan is 5%"....just make sure and see those other terms too.  5% might be true but it might be variable, etc.  Hope this helps!

[javipa]

I saw this was an older post but the subject is so important that I felt it warranted a response.  If you purchase a home with a Hard Money Loan (HML) the HML will likely be lending to you 70%-80% of the ARV on the property.  It does depend on the lender, the property, and the exit strategy....meaning, how will the HML get their money back.  A flip is a treated just a little different than a buy-and-hold.  Since you are seeking to buy and hold it will likely be that a HML will lend you 70%-75% of the value.  This is important because when you refinance into a conventional mortgage you will be limited to 75% of the value of the property (if the property is a Single Family Home).  So right off the bat the loan won't be eligible for cash out refinancing anyway since you are already to the "Loan to Value" limit of a refinance (a purchase has a different LTV).  But for arguments sake, let say you did get this home at a steal and only financed 60% of the After Repair Value....you would actually have to wait 6 months to get cash out of the property with a conventional loan.  So it is the better plan to make sure that you have as little cash out of your pocket when using a HML.  If you purchase with cash there is an entirely different strategy. 

Also though, you could go over this 75% ARV rule with a "porfolio" loan.  A portfolio loan is a loan that comes from the bank's own portfolio of money.  A conventional loan is governed by Fannie Mae and Freddie Mac (if you recognize those names) and when you get a conventional loan it's not coming from the bank it's actually coming from those entities.  But since a portfolio loan will be governed by the bank itself that means that each and every bank has a different portfolio loan BUT it could go above the 75% ARV.  However, you will have a higher interest rate, or a variable rate, or maybe the term is a 20 year term...which would make your monthly payment higher, and etc.  I've actually seen some portfolio loans with all 3 of those differences on one loan.  Please DON'T hear what I'M not saying...I'm NOT saying portfolio loans are bad.  They are very good loans and help a lot of people.  But if someone says "my loan is 5%"....just make sure and see those other terms too.  5% might be true but it might be variable, etc.  Hope this helps!

That's a valuable post!

I would add that the HML rates and terms can get better as you borrow from them more than once.

Same thing with conventional lender's portfolio loans. 

As with anything in real estate, everything turns on relationships.  The better the relationship, the easier and more profitable things become.

Just for giggles, portfolio loans can go bad.  And in some cases, the property is just as bad as the portfolio loan was, making it that much harder for the bank to get rid of.

I learned to do the following from a friend of mine, whom came across a vacant, 10/u building that were basically needing a complete rehab.  The bank was very motivated to rid itself of this liability.  He wanted money for a 20/u apartment deal.  He offered to take the vacant 10 units off the bank's hand, if they would finance his 20/u deal and the 10/u they wanted to get rid of.  They agreed.  They loaned him 100% for both deals, and 20% of the bank-owned deal, to cover the rehab and turnaround, and everybody won.

Banks can be like motivated sellers that way, but with lots of flexibility in either price or terms.  Meantime, we try to solve the bank's problems, if they try to flexibly lend us the money we want.  It's all win/win.

The issue is, we don't want to ever end up as the guy the bank took the property back from in the first place...  Just saying.