In real estate, just like in most markets, cash is king. If you can buy an investment property with cash and close quickly, you will have a massive advantage over other investors.
Delayed financing is one of the tools real estate investors use to quickly buy properties for cash and close, then get their cash out of the property to buy another investment property.
What is Delayed Financing?
Delayed Financing allows real estate investors to purchase properties for cash and close quickly, then immediately finance the property to get cash out.
Though the typical waiting period for “cash-out” refinance is one year after the purchase, there is an exception, referred to as “delayed financing”, that allows buyers to apply for a cash-out refinance immediately (or anytime within the following 6 months) after closing on the property.
By using delayed financing, an investor can essentially employ all the benefits of buying with cash, then immediately finance the property to recoup the cash.
How Much Can You “Cash-out” With Delayed Financing?
With delayed financing, you can take out as much cash from the investment as you put into the purchase, in addition to closing costs and fees. But, the maximum allowed loan amount is subject to the maximum loan-to-value ratio for the cash out transaction based on the current appraised value.
If the appraised value of the property is much higher than what you paid, you won’t be able to take cash out for the full value of the property. You will only be able to take cash out for the purchase price and closing costs.
And, if the appraised value is less than the cash price you paid for the property, you can only refinance and take cash out for the loan-to-value ratio based on the appraised value.
Since the maximum amount you can finance is subject to the maximum loan-to-value ratio based on the current appraised value, work closely with a mortgage loan officer to fully understand your delayed financing options.
What Do You Need for Delayed Financing?
After buying a property for cash, there are a few things you will need in order to apply for delayed financing.
#1 Copy of HUD Settlement
You will need a copy of the HUD Settlement, which will show that you bought the property with cash, and there are no liens on the property.
#2 Source of Funds
In addition to the HUD-1 Settlement Statement, most lenders will require you to verify the “source of funds” used to make the cash purchase.
The standard “source of funds” guidelines apply for delayed financing. So, the source of the funds used to purchase the property must meet the guidelines, be documented, and be verified.
#3 Arm’s Length Transaction Verification
When applying for delayed financing, you will also need to prove that the purchase was an “arm’s length” transaction. The property cannot have been purchased from a relative, such as a parent or sibling. And, the property cannot have been purchased from a party with an interest in the transaction, such as the real estate agent.
Benefits of Delayed Financing for Investors
As an investor, you understand that paying cash for a property and quickly closing can increase your profits. With delayed financing, you can negotiate and purchase investment properties for all cash, close quickly, and immediately apply for financing to get your cash out of the property, which can be used to purchase another investment property for cash.
Delayed financing also allows investors to purchase an investment property that does not qualify for financing at the time of purchase, rehab the property, and then finance the property to get the cash out. Using delayed financing in this manner can also boost profits for real estate investors.
Delayed financing is only one of the tools experienced investors use to boost real estate profits. When used correctly, often by working closely with a mortgage loan officer before purchasing the property, delayed financing gives real estate investors the edge they need to move quickly and snatch the best deals.
Graystone Investment Group
Graystone Investment Group LLC is designed to help new and seasoned investors find, rehab and manage investment properties in the Greater Tampa Bay market.
Our proven system of finding and quickly closing on high quality investment properties as a wholesaler supplies the needs of aggressive real estate investors who use delayed financing to rapidly build their real estate portfolio.