How to Use Delayed Financing To Build a Real Estate Empire

Creative financing is crucial for every real estate investor should know and implement in their business. There are times where it is hard to find financing or loans to purchase a new property. It is much easier to get a loan after you own the home.

Enter, delayed financing. Get your money out of your property quickly with a different type of loan offered by Fannie Mae.

Listen in as Dustin Heiner interviews Lee Huffman, a fellow investor on how he built his rental property business.

Table of Contents Show

What Is Delayed Financing

Delayed financing is a loan process where you acquire a loan after you purchase a property and not wait the 1 year minimum waiting period most mortgages require.

You are able to refinance and pull cash out of up to 70% of the after repair appraised value including your repairs, first year insurance, taxes, etc.

The benefit is that you can get your money out quickly to buy a new property in a short period of time instead of waiting 1 year.

Why Delayed Financing

Regular mortgage may not be an option for various reasons.

You save money and get better deals on properties when you pay cash for them.

As an investor, you may want to not pay on a mortgage until after you have it rented out.

You will be able to cash out refinance much faster than a normal mortgage with 70% equity pulled out in cash to replenish your cash reserves.

It is much easier to get a mortgage AFTER you own the property.

You can show proof of rental income to help your debt to income ratio.

You are a real estate investor who needs to help the tax burden from their income.

Delayed Financing Process

  1. Buy the property with cash
  2. Rehab the property
  3. Get a tenant into the property paying monthly rents
  4. Initiate the refinance process
  5. Add all expenses incurred (Rehab costs, taxes, insurance, etc.)
  6. Pull out up to 70% of the after repair appraised value

In today’s session, I interviewed a gentleman by the name of Lee Huffman. He is a fellow investor that got started a number of years ago when he was living in California, and he bought properties in another state, just like me.

He is going to talk all about how he got started, how he continues to build his business, and how he uses delayed financing to buy his properties, fix them up, and get them rented.

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Where do you currently own properties and did you start buying them when you were in California?

Lee bought all of his properties remotely. He was living in California when he bought his first property in 2006.

All of his properties are in North Carolina, partly because that is where Lee’s brother lived.

Lee sold his house in California and bought a house for his parents. He sold his house in April 2006, which was perfect timing, because everything started to fall down that summer.

Lee and his wife had some money from the sale of their house and they lived in an apartment for a while. One of the houses they looked at buying for his parents had a tenant already in place. He always wanted to invest in real estate and earn some passive income, so he decided to buy it.

When it comes to buying a rental property with a tenant already in place, some people are afraid of it, because they don’t know who they are getting and if they pay their bills on time. There is more research that goes into vetting that person.

Lee didn’t really know any better and he was excited to get a check from day one. On the plus side, they are military, so if they don’t pay their rent you just tell their commanding officer and you will get paid. On the negative side, when tenants get orders to ship out, they may need to leave and then you need to find another tenant.

Lee likes being proactive with his tenants. He keeps his property in the best shape possible and he does whatever he can to be a good landlord so the tenants are motivated to stay there.

Tell me a little bit about that first property like how you found it, was there a mortgage, what was the size, the price, the rent, etc.

It’s been about 12 years, so Lee doesn’t remember the exact details.

Since he was buying with a strong down payment, he was able to negotiate the price down. Whenever you are a qualified purchaser, sellers are going to be a little more lenient with the price.

He believes he bought it for around $112,000, and the rent was about $850 a month. Now that he is more knowledgeable, he would follow the one percent rule and charge one percent of the purchase price for rent.

The rent has gone up over the years and now it is making $950 a month. He has a property manager handling it now, so he just needs to enter the rent payment into Quickbooks once a month.

Overall, the tenants are good. He has eight properties and he is not too into the details of who they are, because he doesn’t want to be accused of being discriminatory. He doesn’t know the names of his tenants, he just knows that he gets a check around the 8th of every month. You need to be very careful so you don’t have negative consequences.

Lee only gets involved when there are repairs needed. He pays the invoices himself to make sure they are applied to the correct property and processed correctly. He would rather be more involved that way.

What was it like to get past that nervousness of buying your first property? Were you scared or nervous? How did you get past those feelings?

Lee has a different mindset than most. He wasn’t really nervous or scared. He looked at it like worst case if the tenant doesn’t pay, it wouldn’t hurt too bad if there was a vacancy.

The property was in a low cost of living area and Lee was making California money. Paying a mortgage in North Carolina would be fine.

Lee’s car payment at the time was the same as, if not more than, the mortgage.

There is a mindset where if you have a multi-family home and have one vacancy, it will still be fine, because you have the other tenants paying rent. But if you only have one property and someone is not paying their rent, you have 100 percent vacancy.

As he has continued to expand his portfolio, one vacancy doesn’t hurt as bad, because you have the cash flow coming in from the other properties to offset the cost.

Do you invest with your wife or other investors?

Three of the properties he owns by himself. One is his first rental, the second is the house he bought for his parents that is now a rental, and he bought a third rental in 2013 or 2014.

In 2014, Lee partnered up with one of his fraternity brothers and they started doing a few flips here and there and now they have five rental properties together.

What did you do with the money you earned from the flips?

Part of the problem with flipping is you need to do your rehabbing differently than if you were doing it for a rental.

For a rental, you make it more sturdy and not as focused on making it pretty.

For flips, you need to focus on higher end finishes and appliances.

With flips, you are going more in depth and the more walls you tear down, the more things you uncover. They made okay money, but nothing that was life changing.

The North Carolina market they were doing this in was not really a flipping market. It was a much better rental market.

Not every market is appropriate for every type of investor. California is not really a rental market, because the return on your cash doesn’t meet the one percent rule, but more of half a percent, because of housing costs and taxes.

What would you say to people to encourage them, or not, that are hesitant to invest in properties outside of their state?

The number one thing is if you are going to invest, you need to make sure the return is going to be worthwhile for you. The local market may not be offering those returns.

You have to consider looking outside of your area where it is good.

Lee has parlayed the fact that he had local knowledge, with his brother and parents living there, as the opportunity to continue to invest.

As a property owner, you can go visit your property twice a year and use it as a write off. This means he can go out there check out his properties and make sure they are in good shape, and scout out new properties. At the same time, he can go see his family. Check with your CPA about the rules.

Consider areas you want to visit regularly and look into investing there.

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Have you made any mistakes or had any failures you can share? What did you learn from them?

The biggest failure on the rental side is that he trusted one property manager too much.

She got into some money troubles and was a little distracted when he was talking to her, and then he found out she was handing over her business to someone else and moving to a different country. It turns out she had spent all of the security deposits from Lee and other property owners.

There isn’t really a logical way to prevent this from happening, except to watch for any unusual behavior with anyone who is on your team. Be careful and if something seems amiss, look into it.

Now he is out security deposits on seven or eight properties and he is trying to work with the state’s Department of Real Estate to recover those.

What lessons have you learned or what tips can you give about investing in real estate?

The number one thing that has allowed Lee to purchase the last five properties is delayed financing.

It is a Fannie Mae and Freddie Mac product. Normally when you buy a property and want to use the after repair value (ARV) for the loan, you need to wait six months or a year to use it.

With this program, as long as you pay 100 percent of the purchase price and the repairs, and you can add some related expenses like first year’s insurance and inspections, if you do all of that on the HUD, you can use the lesser of 70 or 75 percent of the appraised value or whatever is on the HUD as your maximum loan amount.

One of the first properties Lee bought under this program he bought for $52,000, they put about $15,000 into it, it appraised for $100,000, and there was around $67,000 on the HUD, which was their maximum loan amount.

You buy the property, rehab it, get a tenant in place, and then refinance it. As long as you do all of this within six months, you can use the higher loan amount after repairs instead of the purchase price.

Do you work with a mortgage broker? How do you get this process started?

It is all through a mortgage broker. When you are building your team, you want to have people that you can have conversations with to find out what is going on in the industry, and use it and apply it to your business.

Lee was having conversations with his mortgage broker and was explaining how he wanted to ramp up and do more properties and more business, and his mortgage broker recommended looking into delayed financing.

Lee had a few hiccups where he didn’t do it exactly the right way, but overall it is an awesome program.

He has taught a few of his friends how to use it. One of his friends did this whole process within two months. That is almost record breaking.

When you go through the process of the mortgage, does the mortgage company send out the appraiser?

Yes, the mortgage company sends out the appraiser. You can’t pick your own appraiser. These are all real world numbers.

Lee buys these properties distressed and puts in the appropriate amount of rehab. He goes a little overboard on the rehab, because he doesn’t want another expense in a year like replacing a refrigerator or floors. He wants the property to be as nice a possible, while being as economical as possible.

Do you find that most mortgage brokers don’t know about delayed financing?

Lee didn’t search for it, because the mortgage broker he was working with brought it up to him.

There are so many programs available out there, it wouldn’t surprise him if many people don’t know about this one.

A lot of people are inherently lazy. They focus on the basic stuff and knock it out all day long. It is all about finding the right person that knows the fringe products that are really powerful and add a lot of value, that other people may not know about.

Is delayed financing seen as a normal residential loan? How many can you have in your name or in your business name?

It is an investor loan, which is why you are capped at 70 to 75 percent of loan to value.

The loan is in your personal name, but you can have up to ten mortgages under that program, including your primary residence.

Lee has eight mortgages and he has a property he is living in, so he can do one more.

There is an incentive to use more advanced strategies to properly structure how you are going to title the properties.

Lee’s house is not in both his name and his wife’s name, it is just under one name, so it doesn’t count against both of them, both from debt to income ratio as well as property owner perspective.

On top of that, each of the rental properties are in one person’s name, so they could get 30 properties under this program — 10 in Lee’s name, 10 in his wife’s name, and 10 in his business partner’s name.

This offers a lower interest rate. The last one he did, the base pricing was 5.25 percent, but they increased the percent to reduce their out of pocket on the refinancing and got a 30-year fixed loan for 5.875 percent. This is a whole point higher than the one they did a year prior.

Look at your numbers and make sure the cash flow works.

If everything was wiped away and you had to start over, with everything you know now, how would you get started investing in real estate? What would you do?

Lee has built up a lot of strong relationships over the years. Even if his balance sheet was wiped out, he has enough relationships where if he found a great deal, someone would trust him enough and buy the property.

He would take a private, unsecured loan, because with delayed financing, you cannot have a lien against the property and buy it with another mortgage. This is how he would start.

He would use the program to its fullest, because it is quick, easy, and better pricing than other investor loans.

Can you give us a book that you are interested in or that you would recommend to the listeners?

Lee just started reading The Truth About Your Future, The Money Guide You Need Now, Later, and Much Later, by Ric Edelman.

It is about changing the way that you think and the way you approach what you are doing today. There is so much going on in terms of science and technology, that the world in ten years is going to be vastly different.

The assumptions we have been using for the last decade or two may not be applicable in a decade or two. We are going to be living longer because of medical advances, there will be fewer accidents because of self-driving cars, and there will be vast differences in how we live.

Think about that in terms of your business. Think about how you are running your business and how can you take advantage of the changes that are coming.

It is a great exercise in thinking and how you are going to plan out your business.

Think of how your parents grew up versus how you are growing up today. Those changes are not going to slow down, they are just going to accelerate.

How can someone see what you are up to or get ahold of you?

Lee writes for a living about travel, credit cards, and rewards and how to travel for free. His website is In September, he is launching a podcast call We Travel There, where he interviews people about the best things to see, eat, do, and drink, in cities from a local’s perspective.

Check out Dustin’s episode where he talks about Fresno, California.

Interview with Lee Huffman

Lee's Books Recommendation: The Truth About Your Future
Your Future Book

Tell us a little about yourself.

  • Lee lives in the suburbs of Nashville. He just moved there in July 2018 from Southern California for a slower pace and lower cost of living.
  • He doesn’t have any family in Nashville.
  • Lee has been married to his wife for nine years and they have two children, Timothy (7) and Scarlett (3).

What brought you to Nashville, as opposed to any other state?

When Lee and his wife decided to leave California, job opportunities made a difference, and Nashville has the lowest unemployment rate of any major city.

Lee’s wife has been building her career and there was an opportunity in Nashville. They both considered leaving their jobs and starting fresh.

They looked at Seattle, Portland, Denver, Dallas, Austin, and Nashville, because they wanted good weather, lower cost of living, and slower pace of life. They also wanted to make sure there were big city amenities that they were used to.

Lee wanted to make sure the airport was a good size, so he could travel domestically and internationally.

The number one thing was he didn’t want to shovel snow.

Dustin's Alaska 2018 Trip

Before we get started, I wanted to share with you about my trip here in Alaska. I am currently in Ketchikan, Alaska on a fishing trip, and I am on the very tail end of it. I am here with a friend, and even though it has been a great trip, it started out pretty rough.

We were supposed to fly from from Fresno, California to Seattle then Seattle to Alaska, but our first flight was cancelled and our second flight was delayed. They added an extra flight to Portland and then our baggage was on a different plane. It was pretty rough but we made it!

The next day we went fishing and the lake had huge salmon. They were about two feet long! We caught a ton of fish in a lake and in a river and then we took a guided trip into the ocean. We caught our limit of halibut, lingcod, rock fish, and salmon. We are having a fantastic time!

making money with rental properties

Making Money with Rental Properties FREE Investing Course

Get it FREE and Subscribe to the MPI Newsletter with loads of investing tips, advice, and advanced strategies for investing in real estate.



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