Paying cash, fixing up, holding & extracting 80% equity

Has anyone ever considered paying cash [your own] for a great rehab property, fixing it up, holding it / renting it out - and then extracting equity…say 80%…through Ditech or another bank that offers low closing costs on loans?

You get the ease of buying property on demand, when you want it, and you also do not lose the power of leverage as long as you extract a sizeable % of equity and don’t pay much on closing costs.

To me I imagine this would be very handy when purchasing properties at public auction, etc.

People do this all the time.

You may run into some lenders who are thrilled that you’re pulling cash out (even though you already paid cash for the property), and you may run into seasoning requirements (you need to own it for a little while before they will refinance it), but overall what you’re suggesting is done every day by many, many people.

When we were investing in Louisiana where the properties were cheap, this was out method…

  • Find a decent property meeting our basic standards in our target area
  • Negotiate an all-cash, close in a week deal for a discount
  • Rehab as necessary
  • Put a renter in at market rent
  • Get a new appraisal based on the fixed-up costs
  • Refi through the local bank for 80% (no PMI)

Getting a good discount upfront and making sound rehab decisions allowed us to pull out between 95% and 103% of all of our out of pocket expense. So, for a few thousand (or less) out of pocket, we would have a 20% equity position and a PCF of at least $125 a month.