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Cashing out of a house

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yveskleinsky

Silver Contributor
Speedway Pass
Jul 26, 2007
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In trying to find my direction and focus, I stumbled upon a cute 1/1 in the mountains. The area is great and the seller is desperate (coming down $5k a month...which doesn't happen in this area. The house is now down to $69,500. I think I could get it for $45k if I paid cash.) The price is right and the house is fully furnished. I don't know if I would or should purchase this house- but the idea of it spawned this question:

If you find a good deal and KNOW that the owner would sell at a great price for cash, would you find the way to purchase it cash- if you think it would make a decent rental? If so, could you refi it or somehow get a loan on it to where you pay off the hard money loan you took out to buy it for cash? ...Would I go to the bank to get a refi? And, estimating that FMV is $85k, could I refi it for $85k- or close to it?
 
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Runum

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Aug 8, 2007
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I would think that you would only be able to cash out 80% of FMV max. I have not done this myself but intend to in about 2-3 months. I'd be interested to see if you can get more than 80%. Good luck.:cheers:

Greg
 

AroundTheWorld

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Jul 24, 2007
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okay...

two part response.

Part one.

You started by saying you are trying to find your direction and focus. That is funny because I was just thinking that about you. (after reading your tanning salon biz.)

I suggest you sit down and follow the famous Make a Plan post by Russ... or do some good ol' soul searching. Maybe read the Seven Habits of Highly Effective People.

Get some focus.

Next.... to answer your question. IMO (and I am not a mortgage broker so take that into account. Other more qualified people will be able to respond better than I)

Non traditional loans (including HELOCS) right now are a bit harder to come by. A refi would probably be easier than a HELOC.... so if you've got a hard money loan - going to the bank after that I think they would consider it a refi - and easier to do than a heloc.

You could probably get (all other financials allowing it) 80% of value.
 

yveskleinsky

Silver Contributor
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Jul 26, 2007
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I agree, I do need focus. I suppose I feel like committing to one direction when I don't know what else is out there would be (ironically) impulsive. I have always been the kind of person to where I try everything and see what sticks. I have owned SFR, vacation rentals and a nightclub/restaurant. Each did really well, but each only held my interest for a brief time. Sigh. I'll do Russ' goal post and report when it's done.
 
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Russ H

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Jul 25, 2007
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Sigh. I'll do Russ' goal post and report when it's done.

Hey, why didn't I think of that?

What a great name for that thread:

"The Goal Post" :)

-Russ H.
 

tbsells

Contributor
Jul 27, 2007
286
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Ohio
I've done this type of thing and there area couple potential problems.
1) As the other posters have said, a cash out refi on non owner occupied property is usually limited to 80% of appraisal.
2) It may not appraise for the $85k you think it will even if its worth the money. An appraiser will look up and see that you just paid $45k for it and will have to note that on his report. It will hard for him to justify an appraised value nearly double what you just paid for it. I know you shouldn't be penalized for getting a great deal, but that is how it usually works.

It does sound like a good opportunity. If you buy for $45k and it appraises for 60K you could get all your money back on an 80% LTV refi. You would have nothing in it except the equity the seller gave you. Would it positive cash flow? The payment would only be like a car payment. It seems like it would have to make a couple hundred each month plus you would have the equity in the property. Not bad for an investment of $0.

Better yet, why not go to the bank and get approved for the loan before you make the guy the offer. Show him you are approved and it can be closed in 2 weeks. It will be essentially the same as cash to him and you will save the HML expense and the cost of the refi. You will have one closing cost expense instead of two. I've never used it, but I hear hard money is expensive.
 

phlgirl

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Aug 29, 2007
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Yves -

The scenario you posted is very similar to the business model that we perform in FL several times a month.

Does the house need any work, to make it rent ready? Paint? New flooring, etc? All of this must be factored in as well. Be realistic....whatever number you come up with, as an estimate, add 20% for cushion.

So, let's say you were able to buy it for 45k and it needed 5k of work - all in cost is 50k. Add the financing costs (hard money + closing costs on the refi). This is the amount you will need to be able to pull out, in order to have none of your money left in the deal.

Financing - what you are going to need is a bank which has a program for a cash-out refi, with NO seasoning requirements, 80% LTV.

Are you employed? (w2 type job?) If so, this will make your life a little easier. If not, add Stated Income to the program definition above.

We are currently working with 2 banks, in Florida, which offer such a program. They are not the easiest programs to find, but they do exist. One is with a smaller bank, the other with Wachovia.

Tbsells is correct - the appraisal will be a huge factor also; however, if you can show multiple solid comps, in a close proximity, which have sold fairly recently in the 85k price range, it should not be a problem. I would do this research yourself first - make sure the comps are there. If you don't have access to the data, ask someone who does to help you.

That said, if you spend 50k on the property and let's say another 7k on financing (twice), you only need the place to appraise for 72k and you will be able to cash out every penny you put into the deal. In this case, we would have a rule which says that the monthly rent must be At Least $570 a month. You will want to do a full calculation, with taxes and insurance - this is a Rough estimate.

Sounds like a great deal, without knowing all of the details. If you want to post more info.....taxes, insurance, closing costs, etc. I would be happy to run the numbers with you.

I would make a few calls and find out what rates you can get for hard money. We pay 3 points and 15%
 
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