Buying Rental Property w/Cash

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hwystr
Posts: 1
Joined: Sun Dec 18, 2016 4:50 pm

Buying Rental Property w/Cash

Post by hwystr » Sun Dec 18, 2016 5:01 pm

Has anyone has bought a rental with cash and then financed it after the sale? I have an opportunity to buy a short sale (but seller/bank requires cash - as property is run down and won't pass mortgage requirements).

I can front the cash, but would like to mortgage the property longer term after I add improvements. My concern is that I believe deducting interest on rentals has some limitation that the loan must be used to buy/improve the property. If I buy it with cash, is there a deadline in order to finance it (and be able to deduct the interest?).

This is also complicated by the requirement that cash-out refi's require >6 months after a purchase. I have just heard about "delayed financing" programs, which allow quicker financing. Anyone been thru something like this?

travellight
Posts: 2781
Joined: Tue Aug 12, 2008 5:52 pm
Location: San Diego

Re: Buying Rental Property w/Cash

Post by travellight » Sun Dec 18, 2016 7:51 pm

Can you use a heloc to buy the property cash, wait 6 months then finance the property with its own loan?

I have bought properties cash but haven't refinanced them after that.
I have also done a cash out refi on a house that was paid off.

Kencufc
Posts: 133
Joined: Sat Jul 30, 2016 9:36 am

Re: Buying Rental Property w/Cash

Post by Kencufc » Sun Dec 18, 2016 11:28 pm

Your complicated attempts at financing tell me you shouldn't buy this rental. If you can buy it in cash, just buy it, fix it up, and rent it out. Do you have cash reserves apart from the money you would use to purchase?

EasilyConfused
Posts: 106
Joined: Tue Sep 02, 2014 4:04 pm

Re: Buying Rental Property w/Cash

Post by EasilyConfused » Mon Dec 19, 2016 12:24 am

hwystr wrote:Has anyone has bought a rental with cash and then financed it after the sale? I have an opportunity to buy a short sale (but seller/bank requires cash - as property is run down and won't pass mortgage requirements).

I can front the cash, but would like to mortgage the property longer term after I add improvements. My concern is that I believe deducting interest on rentals has some limitation that the loan must be used to buy/improve the property. If I buy it with cash, is there a deadline in order to finance it (and be able to deduct the interest?).

This is also complicated by the requirement that cash-out refi's require >6 months after a purchase. I have just heard about "delayed financing" programs, which allow quicker financing. Anyone been thru something like this?
Yes, I've done exactly this. I've never heard of not being able to deduct interest on a cash out refi. It's all investment expense. In fact, you can also deduct all the refi costs. I thought the seasoning period was longer than six months, though -- if I pay cash I can apply for a mortgage using the purchase price as the value at any time but my banker makes me wait one year and one day before I can apply for a refi at the improved value.

I'm not an accountant or a tax lawyer, so please don't take my word as gospel, but I am a real estate investor whose accountant deducts all the interest I pay on my rental property loans no matter how they originated.

Tal-
Posts: 359
Joined: Fri Apr 22, 2016 10:41 pm

Re: Buying Rental Property w/Cash

Post by Tal- » Mon Dec 19, 2016 12:46 am

Yes - I've purchased using cash and then financed using the delayed financing rules. It's a sound strategy, but has a lot of pitfalls!

First, very few banks play with delayed financing. Virtually all of them instead stick with the standard refinancing rules, which have different guidelines.

Second, it will be difficult to get an appraisal amount that is higher than your purchase price using delayed financing.

Third, be mindful of timing! Delayed financing must be done within a set amount of time, where refinancing can not be done until a certain amount of time has passed.

Fourth, if you already own a few rentals with mortgages, you may be able to use delayed financing, but not traditional refinancing.

And fifth - others will disagree with me, but I feel strongly that you should not hold the property long-term without financing.

In either case, find a good, real estate investor savvy mortgage broker to talk with PRIOR to buying. I have a guy that I've used in the past, so feel free to PM me if you'd like a name.

Happy Hunting.
Debt is to personal finance as a knife is to cooking.

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