I’m going to set your lending strategy on
***EASY MODE***
People email me EVERY SINGLE DAY trying to replicate my delayed finance strategy. So I’m making this post for a few reasons
1. post basic rules and common errors when using delayed finance
2. post frequently asked questions that come to my inbox
3. REFER my personal lender to you so you don’t have to worry about any of this!
- BASIC RULES OF DELAYED FINANCE
If you’re not sure what delayed finance is, it’s a loan program that allows investors to skip the 6 months seasoning requirement on single family cash out refinance deals. The program will allow you to finance out 75% LTV or 100% HUD (whichever is lower) so you can’t get back more than you put it, but if you buy a value-add rehab and create 25% equity, you’re at 75% anyway! This will allow you to use one set of cash to buy a BUNCH of houses quickly.
The good:
- No seasoning, you can finance as soon as the property is rehabbed and rented.
- If you do it my way, you can get back 100% of your funds (including rehab costs)
- Must use YOUR CASH. The lender will track source of funds. No private or borrowed money can be used unfortunately. 401k and HELOC money are good!
- There is a 10 mortgage cap set by Fannie Mae, it’s not impossible to get around, but it’s tricky. I recommend using this method to get your first 10 houses and then moving on to something else.
Here are the actual Fannie Mae rules for the program. Good to read through so you know what the deal is!
https://www.fanniemae.com/content/guide/selling/b2/1.2/03.html
HERE IS WHY MY METHOD IS SO LUCRATIVE, WHY I WAS FEATURED ON BIGGERPOCKETS TO TALK ABOUT IT, AND WHY I SEEM LIKE SUCH A GENIUS
Delayed finance is not complicated, but there are a lot of intricate details that matter to maximize it’s usage. The one that really has propelled my forward and gotten so much interest is adding ancillary costs like rehab and insurance to the HUD-1.
This is a big help because delayed finance says you can only get back 100% of HUD-1, basically what you paid for the asset. So what I do is get an invoice from the contractor and my insurance agent and have it added to the HUD-1 at the time of closing. Now it forces me to pay for those costs all upfront at closing, but it also allows my to finance 100% of asset cost plus ancillary cost when I refi with no minimum seasoning time and that is huge!
Frequently Asked Questions
- I bought the house, rehabbed it, got a tenant, but now my lender says I can’t refi! What should I do?
- I asked my lender about delayed finance and he says he never heard about it
- I asked my lender about delayed finance and he says I can’t add my rehab costs to the HUD-1
- I just learned about this loan product and want to use it, but I already bought the house, how can I add rehab costs to the HUD-1
I get these questions constantly, the answer to all of them can be explained pretty easily at once. First. line up your exit strategy before you purchase. This cannot be understated. You need to find a lender who knows how to do this process, you need to find them before you purchase, and you need to work out the details with them from the start. having an exit strategy doesn’t mean you’ll ‘figure something else out’ if things go south, it means you have mitigated these risks before you even purchase the building. This is the single best piece of advice I can give on delayed finance and BRRR in general. Get a lender who can implement your strategy and include them from the very start of your process.
Ok since I want to help my team and you I’m sharing the link to the lender I use and who has helped personally me do my last ~9 loans and I’ve brought countless more people to him who have had similar success.
Patrick from MC Mortgage group really knows his stuff, and works almost exclusively with investors. This is the ONLY guy I would recommend and an extremely valuable part of my team (maybe more valuable than me actually).
For residential mortgages he currently only operates in North Carolina. We are looking to expand though, if you can supply deals in another state and want to use Patrick, please reach out and tell us!
Commercial fix and flip loans are available NATIONALLY so he can help you with this if you need.
I make no secret that I feel contempt for my peers who pretend to operate a real estate investing business but their primary source of income is coaching, courses, and affiliate referrals. This is the only thing that I solicit on my website and I feel 100% comfortable doing it because Patrick is SUPER HUMAN when it comes to helping real estate investors and I’m happy to share his information. So to comply with my personal commitment to transparency and to adhere to legal liability, I’m disclosing that depending on what business you do with him I may get a fee for providing this referral at no additional cost to you.
Links to Market Consulting Mortgage social media accounts
Patrick Stoy NMLS# 39527
MC Mortgage NMLS# 39166
Need help?
Don’t be afraid to email me with questions, I help people with this stuff all time. If you prefer you can set up a video chat using the link at the bottom of the page as well. You can also leave a comment on this post and your question might help the next person reading!
8 Responses
Alex,
Thanks for posting! I was actually just going to email you about this exact topic this morning.
Greg
When I listened to the your episode of the BiggerPockets podcast, I knew this topic was huge but it was so far over my head. I will keep digging and see where this leads me. Thanks for so much great info.
Regarding HUD-1, you said you get an invoice from the contractor for ALL the work correct? Say the budget/invoice is $40k. That amount gets added to HUD-1, I need to fund that at closing and it goes into escrow, right? How are draws taken out of that escrow, then? Does it need to be via that contractor? Can it be any contractor? Can I take money out of that escrow to do my own rehab?
Any and all help is appreciated. Thank you in advance Alex!
disbursement will be set up between you and the title company.
My title company pays the contractor in full once the deal is recorded. You can certainly have them set up draws, it may cost you a bit to have them do it (it may not).
These are good questions though, make sure to discuss it with whoever is doing your closing! It’s vendor dependent.
Alex,
Good morning. Have been intridgued by this topic since listening to you on BP last fall. Question: Have you ever heard of someone using delayed financing with a non-recourse loan? I have a solo 401k and must use non-recourse lending for my properties.
Thank you,
Tim
Delayed finance is a Fannie Mae loan product ONLY, so it’s a residential mortgage program and that comes with recourse obviously.
I’m not an expert at Solo401K you know who might help you out though is a guy named Paul David Thompson. If you can’t find him email me and I’ll get you in touch!
Fannie is obviously a personally guaranteed loan which caps you at 10 transactions. (Without getting tricky as you say)
How stringent do you feel the underwriting was for this strategy compared to cash out regi or perhaps a traditional mortgage purchase.
Tax strategy/ownership wise, are you having this done personally then deeding them over to your holding companies?
most cash out refinance and traditional mortgages ARE fannie/freddie. Even if you use a single commercial loan for the property they could jam you up over the schedule E since you’ll still be showing 10 properties. The cleanest way is to refi the bulk of them to a single commercial, and report the income as Schedule C but that’s a LOT of work. For me it was easier just to start buying bigger multifamily and avoid the problem altogether.
All of them are owned in my personal name with a regular mortgage.