Nov
3
The Rental Market Is Back
November 3, 2006 | Leave a Comment
Yes, you heard right. Vacancy rates are decreasing, demand is increasing and I think it’s time you became a landlord. Flipping properties is hard. I hear feedback every day from clients who are having a very hard time selling their rehabs. Many of them are slowly losing all of their profit or worse, going broke trying to make the mortgage payments on houses that are sitting vacant and for sale.
As many of you know, I invest only in multi-units. I really like 3 and 4 units but also have a couple of duplexes under contract because the deals out there are so great right now. 2-4 unit buildings will qualify for residential financing and you can get 100% financing for these properties.
My strategy is to acquire them with 100% conventional financing (with no prepay penalty), fund the repairs out of my own cash reserves and then refinance against the current appraised value. I *do not* take cash out, I just do a rate and term refinance to get the best rates and then usually put a 2nd mortgage against the property at a later date if I want to get that cash back out. This is what works best for me because I am cheap and able to qualify for conventional financing. Your strategy may be different.If you have some cash or equity to put into a deal, I recommend looking at apartment buildings of 5 units and more. There are a ton of properties available right now and with the improved cash flow from increasing rents, many can qualify for my most aggressive commercial apartment loan program - 90% LTV PLUS a 40 year amortization which is unheard of on commercial loans.Here are some recent stats to whet your appetitite:– Top Rents by Area
1. Boulder County
2. Denver Downtown
3. Douglas County
4. Arapahoe County
5. Broomfield– Buildings with 2-8 units had the lowest vacancy rate at 5.5% down from 7.6% in the 4th quarter.– Given the limited number of new additions for the last six quarters, the improvement in the overall Denver metro area economy and the increase in interest rates, we landlords and wanna be landlords have the perfect storm!You cannot go wrong with a buy and hold OR buy fix and hold strategy in real estate. I can help you put together a multi-family investment strategy - just give me a call at 303-534-7078 or shoot me an email to set up a teleconference.
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Nov
3
Cash Out On Your New Property
November 3, 2006 | Leave a Comment
Probably the most popular request I got here at Lassiter Mortgage Group in October was from investors looking to pull cash out of an investment property that they have owned less than 12 months. This is typically what we refer to as an “unseasoned cash out refi”.
On unseasoned cash out refis there are two ways we can approach the loan: 1) we can ask for a loan up to a certain percentage, say 80%, of the current (i.e. new) value of the property or 2) we can ask for a loan in the amount of the original purchase price plus documented improvements.
The most popular request is always for 80% of the new appraised value. Most of my clients buy properties that need work and the as-is appraisal is always much lower than the as-repaired value. Once the work is done, voila, you have a new appraised value.
From the lender’s perspective, there are many issues associated with unseasoned cash out refis against the new appraised value but the main one is that it is the riskiest loan available. Even more risky than 100% acquisition financing.
There are lenders out there that do these loans but they are usually niche lenders that are really subprime lenders. They are willing to do some of the risky stuff because they charge you higher rates and fees to mitigate the risk.
In September, I had two lenders call to say they had a great new program for unseasoned cash out refis against new appraised value for investors. I got very excited and immediately sent them three loans. We closed two of them and the third was finally denied because the borrower had employment gaps that the lender was uncomfortable with.
Almost as soon as we closed the last one, I got calls from both the lenders. One said that they were discontinuing the program (that was quick!) and the other said that they are now requiring a minimum of three month’s seasoning to do the cash out for investors. He said there were too many instances of “flipping”. Well, duh, is my response. What did they expect?
That’s the bad news. The good news is that I have a few more lenders that have announced unseasoned cash out refinance programs this month so we still have an outlet for them. If you have a property that you’d like to get cash out on, give us a call or email me the details and I’ll get you a rate quote.
In the meantime, here are some things to consider with regard to cash out refinances on your investment properties:
1. DO NOT list your property on the MLS and then try to do a cash out refi. There are very few lenders that will do the deal and even fewer who will allow cash out on a recently listed MLS property. Plus you will have a prepay penalty about 100% of the time.
2. Don’t expect an inflated appraisal to fly. Lenders will order a 2nd appraisal on every unseasoned cash out deal. They will either cut the value or reject the deal altogether if they smell anything fishy appraisal-wise.
3. Make sure your property is occupied. Vacant properties are difficult to refinance period.
4. If the new loan amount with the cash out is going to cause negative rents then make sure your income can absorb the hit so your debt-to-income ratio stays below 50%.
I hope this has shed some light on the issue of unseasoned cash out refinances!
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