Real estate investors looking for financing options may come across the term “cash-out refinance.” This type of refinance allows investors to access the equity they have built up in a property and use it for other investments or personal expenses. However, cash-out refinancing for BRRRR (Buy, Rehab, Rent, Refinance, Repeat) loans may come with seasoning requirements. In this blog post, we will discuss seasoning requirements for cash-out refinancing and explore options available for real estate investors.
What are Seasoning Requirements for Cash-Out Refinance?
Seasoning requirements refer to the amount of time an investor needs to hold the property before applying for a cash-out refinance. Most traditional lenders require at least six months of ownership before they consider refinancing a property for its new appraised value. The purpose of seasoning requirements is to protect lenders from the potential risk of overvaluing a property. This means that if an investor buys a property for $100,000 and renovates it for $50,000, they may think it is worth $200,000. However, the actual appraised value may only be $150,000. In such cases, lenders may require investors to wait for a specific period before refinancing to protect their investment.
Understanding Options for Real Estate Investors
Real estate investors may find seasoning requirements challenging, especially if they want to complete a quick fix-and-flip. However, there are options available to them. Bo Eckstein, a real estate investor and host of the Investor Financing Podcast, suggests working with lenders who offer Bridge Loans or Fix-and-Flip Loans. These lenders may not have any seasoning requirements, and investors can refinance their properties as soon as they complete their renovations. However, investors need to ensure that the senior debt or the fix-and-flip money is competitive to make this option viable.
Another option for investors is to work with lenders who offer DSCR (Debt Service Coverage Ratio) loans. These loans allow investors to convert from Fix-and-Flip loans to a stabilized Bridge Loan, which means they can access the new appraised value of their property after four months. However, some lenders may require six months of seasoning before offering a DSCR loan. Investors need to understand their lenders' requirements before making any decisions.
Final Thoughts
Cash-out refinancing can be a valuable tool for real estate investors, but seasoning requirements may cause hurdles for those looking for quick financing options. Investors need to understand their lender's requirements and explore options such as Bridge Loans or Fix-and-Flip Loans that have no seasoning requirements. Working with a seasoned real estate professional like Bo Eckstein can help investors navigate these requirements and find the best financing options for their investment properties.