If I buy a single family home, rehab it, and rent it so it has a positive cashflow… can I then get a mortgage on the property to hopefully get my initial investment out of the property and have equity remaining in the property?
Thanks for all the help!
Yes, theoretically. That is predicated on the idea of buying low enough to cover under today’s lending rules. By this I mean that you need to buy low enough to cover your rehab and holding costs and then still have enough of an equity stake to refinance at, say 20% down.
When I was in Louisiana, I would buy a property all cash/close in a week. Then rehab the property and put a tenant in. Then, I would go to a local lender that understood what I was doing and get an 80% mortgage based on a new appraisal against the refurbished property. I would usually get my money back, have a positive cashflow (our target was AT LEAST $125 per month/$1500 a year), and a 20% equity stake in the property. We did this a number of times.
Also, you need to be in an area where the rents are relatively high compard to price. It is also easier if you have a lender that is investor friendly and ‘gets it’.
Keith
Is there a grace period on how long you must wait to do this?
What are the requirements of being able to do this? My tax situation isn’t exactly great. Must I sign for the mtg personally, or can it be under my LLC w/out signing?
I bought with cash out of my account, so there was no waiting period…just whenever I got done with the rehab and got tenants in. I was in an area where nice rentals that were fairly priced rented very quickly.
You’ll have to ask your lender, but most generally, you will have to personally back the note and the lender may or may not allow you to move it under the LLC.
Keith
Keith,
I am really interested in what you were doing in LA and would like to ask you a few questions.
Did you use your own money to pay cash? I dont have enough cash to do that so would a hard money loan be an option?
Would you typically rent the properties or do LTO?
You said you would “usually get your money back” what money are you referring to? i.e. all the fees, the original price you paid, or both?
Do you have any recommendations on where I could study/learn more about this strategy?
Thanks for the info and if anyone else has any, ill take it!
Did you use your own money to pay cash? I dont have enough cash to do that so would a hard money loan be an option?
I used my own money. Hard money could be na option but it is usually pricey.
Would you typically rent the properties or do LTO?
Always rented.
You said you would “usually get your money back” what money are you referring to? i.e. all the fees, the original price you paid, or both?
Both. Fess are a LOT lower when you pay cash…you don’t deal with a lot of garbage fees from hte lender. And, because you own the property and are technically refinancing (‘cash-out refi’), the fees are lower.
Do you have any recommendations on where I could study/learn more about this strategy?
This is a pretty common strategy…and is relatively simple (Carlto Sheets covers it, for one). You learn a lot doing it - more than just reading about it. I was doing 'most all of the rehab, too (except for things that I just won’t do - heavy electrical, furnace replacement, air conditioning, complete driveway replacement, etc.)
Keith