Delayed Financing – Using O.P.M. To Buy More Properties

Financing is the life blood of your investing business and delayed financing is a fantastic tool for us as investors. Utilizing other peoples money is the fastest way to scale your business even larger. A great new way to buy your next rental property is with delayed financing.

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What Is Delayed Financing?

Delayed financing is the process of buying a rental property with cash and then refinancing the money back out within a few months of closing. This is done by informing the bank before hand of all the work needed on the property and making sure it is in the HUD statement. When you finish the repairs, the bank will get the property appraised and give you 75% to 80% of the appraised value.

Here is the process:

  1. Put a property under contract for purchase
  2. Inform the lender you will be doing delayed financing
  3. Inform the title company you will be doing delayed financing
  4. Get quotes for all the work that will be done on the property AFTER close
  5. Make sure all the quotes are line items on the HUD paperwork when you close on the property
  6. Once you close on the property, begin work needed to be done
  7. Once the work is completed, have the bank start the refinance process
  8. After the appraisal, the bank will give you 75% of the total appraised value
  9. Cash out the money and buy your next rental property.

It sounds complicated but it really isn't.

On today's podcast I have Patrick Stoy joining me from MC Mortgage Group. He is going to help us understand financing, including delayed financing, which I have used in the past.

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Delayed Financing for Rental Property Investing

Tell us a little bit about delayed financing. Give us the broad overview like what is it and how it functions.

Delayed financing is when you use an asset — whether it’s your own money, a loan from a retirement account, or money from a home equity loan — to purchase a property with cash and fix it up to where it is in rental condition.

Patrick’s company will provide you with your project cost, up to 75 percent of loan to value.

For example, you buy a property for $60,000, you put $15,000 into it, and your property cost is $75,000 but it is worth $100,000. Now you can get a loan for $75,000, which is 75 percent, once you are finished doing your rehab.

Delayed Financing Is Just Like Normal Financing: 30-year or 15-year fixed rate

Yes, this is just like a regular 30-year fixed rate mortgage.

Are the points different? Is there a higher interest rate?

There is an adjustment in the pricing, because it is considered a cash out since you own the property free and clear.

The key with delayed financing is you cannot have a lien against the property.

This is essentially a pricing mechanism, and there is a higher rate than a purchase transaction.

Let’s say someone has equity in their home and they want to do a cash out refinance. Would they start with you to do the refinance?

On their primary residence, someone could borrow up to 85 percent equity (according to their appraisal) from their house.

If there are good rates, you could get a line of credit from a bank. There are some banks that will loan up to 100 percent of the appraised value of your home, and you could use that line of credit for your rental property business.

You basically borrow the money from the home equity line to purchase a property, so the lien is against the primary residence and not the property that will have the delayed financing.

Why do we not have to wait six months like we would with other types of loans?

The good thing about delayed financing is that you don’t need to wait to pull out 75 percent of the appraised value, like you would with other types of loans.

There is no lien against the property, so Patrick can start the process right away.

They’ve had people complete this process as quickly as 15 to 20 days after the property was purchased.

If there is borrowed money from a home equity line, Patrick’s company pays the home equity line back first. As quickly as you get the financing, you can do it again.

Generally there is about a 45-day time cycle from start to finish, and you can roll that about six times a year.

Are there more lender and mortgage brokers that do this or is this a specialty?

This is available to everybody.

About five or six years ago, Patrick and Lee Huffman asked one of their investors if they put the project cost onto the settlement statement if it would still qualify. It fit into the guidelines, so it is available, but someone needs to understand it and know how to do it.

They have made delayed financing their strong point and their investors are okay with it.

Do you have other banks you use or just one?

Patrick is a mortgage broker and he is signed up with over 50 banks, but he usually does business with five of them on a daily basis.

He hasn’t had any issues with any of them using delayed financing.

Do you have any other thoughts of how to use mortgages in a creative way?

The most financed mortgages you can have is ten. If you have ten financed properties, you need to figure out what to do, if you want to keep investing.

At that point, Patrick and his company switch gears to debt service ratio lines, which uses the cash flow of a property to support the transaction. This doesn’t get into your personal liabilities or income, because they are now structured as commercial transactions.

You will hold them inside of an LLC and it is based solely on the cash flow of a property. There is no limitation of how many of these you can have.

You can do this over individual properties or do a blanket loan over many properties and create yourself a mini REIT. On these you can get 30-year fixed rates or adjustable rate mortgages (ARMS).

If I have four properties that are in a blanket loan right now and I want to refinance them into 30-year fixed loans, do I bring them to you?

Patrick would do an appraisal on all four of them. You can actually pull the cash out on all of them if you wanted to, depending on credit score and loan amounts.

This could turn into just one loan payment a month that includes taxes and insurance and the loan is secured by all four of those properties.

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If anyone has a property with no liens, you can lend money on that property?

Yes, this is attractive to people who no longer have their W-2 jobs and are trying to figure out a way to keep investing.

Patrick will sit down with them and do a cash out on the properties they own free and clear, bundle them together to create that mini REIT, and then they can use that cash to buy the next property, get it rented, and then duplicate the process.

Every time they get a property rented, they refinance and do it all over again.

Any other tips or ideas of how to get financing?

A lot of the banks are captive to their rules.

Being a mortgage broker, Patrick is an advocate of brokers, because they have multiple options that can get things accomplished.

If the deal makes sense, you have decent credit, and you have assets to work with, there is generally a way a broker can find a way to get it done.

The capital markets have really come back over the last few years and they are being really aggressive with their rates.

Blanket Loans

What are your thoughts about blanket loans. If somebody had 20 properties and owned 10 of them free and clear, is there any limit to the number of properties they can put under the loan?

There is no limit. The bigger the loan amount, the better your rate.

Patrick’s company looks at what is the best way to get the best deal, based on the portfolio somebody has.

There are pre-payment penalties, but they are generally only five years. Usually after five years you can do what you want with it.

With a 30-year fixed product, Patrick typically says to lock it in. If you don’t have the strategy of refinancing, at least the loan is guaranteed. Usually, after five to seven years is when people make their move. It gives them the option to pull the cash out and do the next deal.

If somebody wanted to work with you, are you just in North Carolina or do you work with people in other states?

As a residential broker, for one to four units, he only works in North Carolina.

Patrick is part of a network of many brokers across the country. It is just a matter of somebody emailing him and he will introduce them to a broker in their area.

From a commercial standpoint, it is unlimited. Every state has their own requirements, so there are some states Patrick’s company is not able to operate in.

Every deal is different and it is a matter of contacting Patrick’s company to see if they can do it or they will find someone who can in that state.

Have you worked with anyone outside of the United States to invest here and then refinance (not US citizens)?

On the residential side, there are lines for foreign nationals and ITIN loans that are available. You can only use those for investment properties and second homes.

An ITIN loan is for somebody who is in the United States, does not have a Social Security number, but they registered with the government and have been filing their taxes under an ITIN.

What if somebody lives in another country?

That is called a foreign national loan.

As a broker, Patrick’s company has a lot of different sources. They are not captive to one bank’s rules, because they have access to a lot of different institutions.

If somebody were to work with you to get a residential property in North Carolina, is there an area you would suggest to get a property for $60,000 to $80,000 so they could do what you are talking about?

For that price range, there is Fort Bragg and Jacksonville, which are the military institutions.

Those areas have a lot of turnover, because people are moving in and out, and that keeps the prices relatively low.

Once you get into Raleigh, Chapel Hill, and Durham the prices start to go up, because those are big technology and education areas. Charlotte is a big banking area. If you go west of that toward the mountains, you will have those price ranges, but it depends if it is a good rental area. Most people in those areas own their properties because they can be generational properties.

A little bit about Patrick Stoy

Patrick lives in Wilmington, North Carolina, right along the border of North and South Carolina, along the coast.

The hurricane that came through last fall caused flooding in the area and he has been working a lot with those who were affected.

He is married and has two kids. His son is 17 years old and goes to school in New Hampshire, and his daughter is one year old.

Patrick is married to his wife Laura, who is a commercial insurance agent with Wells Insurance Agency.

He has two dogs and a cat.

Tell us about the flooding that happened last fall.

The hurricane hit in the middle of September, and Patrick and his family left the area with the majority of the town, because it was coming in as a Category 3.

The beaches didn’t have much impact, but the inland rivers swelled and there was a lot of flooding in places there was not supposed to be flooding — many people didn’t have flood insurance.

When they got back into town they all gathered at the church and gave people who didn’t have flood insurance their options. They talked about how to work through the system and how his company could provide 100 percent financing as long as their house would be paid off after insurance, so they could get the home owners back to stability as quickly as possible.

Since October, they have been getting people back into properties. One family just closed on their property a week ago.

The whole process takes a long time. In some cases it may lead to an entire tear down of the house instead of just fixing part of it, because of problems that occur while people are waiting for the insurance to come through.

Patrick and his company are doing everything they can to get people back into homes, because there are still people living in hotels.

Tell us how you got started investing in real estate and about your first deal.

Patrick bought his first house in 2001. He was outgrowing the house, and, in 2003, he was faced with the decision of either selling the house or jumping in and turning it into a rental property.

His first inclination was to guarantee the income coming in and he went Section 8 on his first rental house. For the first year, he went through the process to be approved for Section 8 and then found a Section 8 tenant. After that experience, he felt a little more comfortable and he put it up for rent.

In 2008 or 2009, Patrick sold the property to one of his employees to use as his primary residence. Now the employee is using it as a rental property.

Patrick didn’t really see a big correction on his property in 2008 or 2009.

After your first rental property, did you get into more single family properties? What was your process?

After converting his residence into his first rental property, Patrick bought his second rental property which was a condo in Raleigh, North Carolina, near NC State.

Then he bought into a condo on the Rifle Beach, North Carolina, with a couple of buddies. He still owns this property.

At the same time, Patrick bought into a mobile home park. He felt like he knew what he was doing and he was trying to experience the different ways to own rental properties.

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Did you buy the entire mobile home park or just a unit?

Patrick bought the entire mobile home park.

Six months after he bought the park, the environmental people got in touch with Patrick and said there were citations on the park and he had to remove all of the septic tanks. This didn’t come up on the Phase 1 inspection and it was a learning lesson.

What about title insurance? Did that cover the costs?

Title insurance did not cover it.

Patrick bought the park out of foreclosure so they didn’t get a warranty deed, they got a specialty deed, which doesn’t provide any insurance.

How can someone protect against this happening? What should they do?

Do your due diligence. Check the things that would not be pulled up in a title search or an appraisal, which are usually local environmental issues.

This is especially important when it involves commercial projects that have septic tanks.

Check with the local health department.

The park had 39 homes and they had to go down to 13 tenant owned and put in the infrastructure. This was during 2008, 2009, and 2010.

Now, they have 39 homes in the part and they have their dealer’s license so they can buy the homes from the manufacturer. They are able to provide affordable housing for people right now, especially after the storm.

Do you manage the properties or do you have property managers?

They used to do it themselves, when they were small, but then they had to hear all of the stories.

They wanted to turn it into a business, so they turned it over to a property managing company to remove the emotion.

Now they have their rules and they have to follow them if rent is not turned in on time. There were too many people to not have rules.

Include the cost of a property manager (10 percent) when running your numbers on any property.

Are you still investing in North Carolina or other places?

Patrick has tried all of the things, including rehabbing properties in 2012 and 2013 and flipping them.

Patrick has been in the mortgage industry since 1999 and opened his own mortgage brokerage company in 2005. He has helped a lot of people build their portfolios and has watched many of them retire because of their cash flow.

When looking at rehabbing and flipping properties, Patrick has found the best use of his time is lending, and not running to Lowes and managing construction sites.

Patrick flipped about five or six houses and it was great experience for him to know how to manage those projects and get more efficient.

He now just lends money to people who want to fix properties and flip them.

How can listeners contact you?

Hopefully you are getting the excitement of how you can build a life that can be free of a job and where you can be your own boss.

Check out all of the free resources available on

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