The ins and outs of refi

I am sure this is pretty basic knowledge.

I am wondering how refinancing and pulling money out of a rehab project works and what the ins, outs, limitations, and legal boundaries are for doing this. My partner and I are looking at shells in the baltimore area that are around 130k and we would need to put 55-65k and were planning to sell for 320-350k. We were planning to sell and take profit and do another rehab, but if we could refinance, keep the property, and rent it out for around 2000 a month. THis may be a better plan. I just don’t understand the process of refinancing at all.

If someone could explain further in depth it would be appreciated.

Well unless you are paying cash to purchase these shells then at some point you will have to sell
or refinance rather quickly(within 4-12 months). Based on the property needing extensive rehab work
60k- then you will need a Hard Money Loan, which should work out great with the numbers shown.

Refinancing after the repairs have been completed should be no problem if work is completed properly.
Basically you would apply with investor friendly mortgage co. that has no seasoning requirement,
they will have to take interior photos of the property to insure repairs have been completed.
Also make sure that you have cash reserves on hand when applying as most companies won’t
do loan without you having up to 6 months worth of payments saved up somewhere.
Sounds like these developments will make you and your partner big $$$ in a short time frame.
Good luck-

You would be smarter to hook up with a commercial lender from what I have experienced.

Commercial loans dont show up on your credit report which is nice if you want to buy anything in your own name or for long term holding.

If my loan guy was doing your paper it would go like this, you buy the shell for 130k and do your repairs for 55k. You then would refinance the property at 80%LTV (LOAN TO VALUE). So if the appraised value was say 300k He would loan you $240,000 on a 5 year baloon at prime or half over prime. so you would essentially have

240,000 cash on refinance
185,000 less actual expenses
Less title and closing fees (I pay a $500 a deal closing fee and title rates are standard.

So you could actually pick up another $70,000+ in buying power for the next deal.

I closed 2 deals this week with him in a little different way he financed 100% of the purchase price and closing fee. Instead of having to reclose again later he built in the fact that I will refinance them later at 80ltv so when the properties are finished I will be able to pull out the excess money at no more expense to myself.

Example

$36,000 purchase price he financed
$1,000 closing fee he financed

Later

ARV will be 85k
so he will give me 68k total money on the deal

I will do my repairs of about 10k

So I will have 46k into the property total
and he will give me another 21k 68K-(37k+10k=47K)=21K for whatever I want.

In the mean time I will rent out the home which is a 3 unit for around $1300/mo plus I will have 21k for another deal, The home should eventually sell for $85k.

I hope this helps a little

Eric Medemar

Some commercial loans definitely DO show up on your credit it depends on the lender.
Also most lenders will not fund on property that needs extensive repairs without some
type of repair escrow account being established. They will monitor this account closely as
work progresses and is complted. After each phase of the work is completed you will request
for the lender to reimburse you for the amount spent plus a couple $$$ on top of that :wink:
This should give you enough working capital to continue with rehab until completion.
Once the work is finished you will have it appraised by the mortgage co handling refinance
loan for you to pay off hard money lender & get some additional cash out. Most lenders will
give you 80% of the appraised value pretty easily.

EXAMPLE: Appraised Value - 350k
80% l.t.v. loan - 280k
Payoff existing debt (130k + 60k) - 190k


Leaves you @ 90k in your pocket (before closing costs).
The 90k is not taxed until you sell home, it also leaves
you with another 70k in equity when you do sell.

wealthrx - i am not too worried about getting a hard money loan. we would only need around20-25k. WE have the other 40 for rehab on hand already.

At this point its more of trying to make sure we have a solid exit strategy. of either refi and doing a second, or selling. I guess it would most likely depend on the market conditions.

ericmedem - so with those loans you are just incorporating extra money from the lender to finance a second deal, and just using that financed money so that you need to have less on hand?