Tips For Refinancing the Unseasoned, Recently Listed Investment Property

One of the most commonly asked questions concerning fix and flip real estate investment financing is how to refinance the unseasoned, recently listed investment properties. This is especially true for those investors that have houses on the market that are not moving and which were purchased with hard money.

Real estate investors in those situations want to refinance their houses and place them into regular, conventional financing to reduce their holding costs since interest rates through conventional means are about half of what they are on hard money.

I’ll be honest with you, these are some of the most difficult loans to close. What you’re looking to do is a cash out refinance on a vacant rental property that has been listed on the MLS within the last year. Most lenders out there simply refuse to touch this kind of deal…

Why? Because they don’t want to deal with these loans as they figure the only reason you are trying to refinance is… you want to strip your equity… and the minute you get a buyer, you will pay off the new loan. Lenders hate early pay-offs.

I read somewhere that a lender breaks even on the costs that it takes to set up and fund your loan at the three month mark. So if you pay off a lender in the first 90 days of the loan, the lender loses money. And, lenders absolutely hate to lose money.

The number of lenders out there that will do unseasoned rate and term refinances are considerable, maybe numbering 100-150 lenders. The number of lenders that will do unseasoned rate and term refinances on a recently listed property are few. I think you’ll find that only about 5 will do this type of deal. Not only will you pay for this type of loan in rate but also, about 100% of the time, these deals will have pre-payment penalties.

If you decide to keep the property as a rental, you may feel okay with the pre-payment penalties, but you might also have some explaining to do to others! You will need a letter of explanation for the underwriter stating why you pulled it off the MLS… And to assure them you will not be selling it anytime soon.

It’s nice if you can have your CPA write a letter saying the he/she advised you to pull the property off the market because it will be better for your tax purposes to hold on to it as a long-term rental rather than to flip it and take the capital gains hit.

One other thing to remember is that these loans are tough to do if the property was recently listed and almost impossible to do if the property is vacant. So, make sure you have a tenant in the property. Another tip is to make sure that when the appraiser comes to take a photo of your property and make the appraisal, be sure there’s not a “For Sale” sign in the front yard.

If you have such a sign, the underwriter will see it in the picture and it will be a definite “red flag” to them. It won’t hurt to have the sign removed for a few days, but will be a deal killer to have it there.

Deals like this may be difficult, but they’re not impossible. Find out more about how to finance your real estate investments by going to Financing Your Real Estate Investments []

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