Fannie Mae just made a great new rule change that promises more liquidity for real estate investing companies, though has not yet been widely publicized.
This new change provides a much needed source of cash for real estate investing businesses who still want the benefits that come with making all cash purchases. Real estate investing pros know that making cash purchases of short sales and foreclosures means bigger discounts and is often a necessity on the best wholesale properties if you want to close in time.
However, this often means that your real estate investing volume and profits are limited to the amount of capital you have as it is tied up in your homes until they are sold. This isn’t too bad if you are flipping houses quickly, but for those with buy and hold strategies who are building portfolios of rentals it clearly isn’t always the best, especially with mortgage rates so low.
Until now Fannie Mae has required six months seasoning on deeds before you can apply for a loan to cash out your equity. Now this requirement has been lifted so that you can immediately turn around and take cash out of your property and re-capitalize so that you can keep on making acquisitions or have additional funds to do repairs and improvements.
For banks and lenders this is obviously a no-brainer. If those in real estate investing had the cash to buy they are probably good borrowers and why should they be penalized. Of course you will still be subject to lending guidelines, with LTVs capped at 70% for one unit properties and 65% for 2 to 4 unit properties, but this is still a great deal. Plus it ensures you will never run dry on reserves and operating expenses. However, note that this only applies to Fannie Mae loans and not Freddie Mac.