As an Investor Specialist in the lending world, we are often asked “how can I purchase investment properties without utilizing Private/hard money loans?” Our short answer is “private money loans are the best way to purchase investment real estate.” In all seriousness, there is another route that can save you a lot of money and help you close more deals with lower closing costs, which is what is referred to as Delayed Financing.
What is Delayed Financing?
Delayed financing is a less common way of purchasing investment properties where you as the buyer use your own cash to buy the property, and then refinance the property and get your money back. And no, you do not have to wait for the 6-month seasoning requirement.
Delayed financing has to take place in the six months immediately following the purchase of the property. If you choose to wait until six months has passed, you will have to do a regular cash-out loan. Delayed financing will return your money to you in less than six months provided you only want the purchase price of the house plus closing cost or 75% of the appraised value, whichever is less.
The conditions to use this type of financing require you to purchase the home in cash or personal loan (be it LOC), loan from a parent or family member, loan from your personal assets, or some other loan type that does not show on the title of the home.
The second part necessary for delayed financing is that the home needs to have a minimal amount of repairs needed to get to market value. Repairs need to be minimal, because this money will be left in the house as your skin in the game. This type of financing is great for the investor who has cash or the access to cash and wants to negotiate his or her own discount.
Example of How Delayed Financing Works
The scenario below is how one of my clients was able to acquire a $198,000 property for $163,000, where the house needed minor repairs mostly paint.
My client Mr. X called me and said he was negotiating a piece of property that he wanted to buy conventionally. Since Mr. X was super qualified, I said no problem. A week later I called Mr. X and asked how he was doing and he says “great, how’s my loan” I said “what I don’t have a contract.”
He forgot to send the contract and immediately sent it over to me with a closing date 10 days away, which was a timeline I couldn’t accommodate. After several phone calls (and lots of sweat), I encouraged him to call his portfolio manager to ask them if they would lend him money based on the size of his account with them, and thankfully, they said yes.
Mr. X was able to purchase the home with his personal loan for $163,000 in “cash,” however we could not immediately start the refinance because an appraiser won’t give you a higher value than the purchase price two weeks after the purchase, unfortunately.
I encouraged Mr. X to make minor repairs that had a significant impact, like new flooring (carpet) and paint repairs to help increase the value. Those repairs took about two weeks and we were able to refinance his home within 45 days. Below is how the numbers played out, if you are a visual learner. Mr. X was able to come out of pocket $12,600 less than he would have if we had utilized conventional financing alone, and he got a newly painted house with new floors. Win-Win-Win.
|Total out of Pocket||$164,500|
|New Loan Amount||$148,500|
|Total Cash in the project||$25,000|
|Conventional cash to close w/o repairs||$37,600|
If you’re seeking investment options or investment strategies, we invite you to call our experienced team at Blink. We are Houston-based and are happy to meet in person or over the phone to discuss the best financing and loan options, that fit your needs.