One of the biggest benefits of owning rental properties is being able to access the equity without having to sell the asset by performing a cash out refinance. If you’re unfamiliar with the process, here’s a quick explanation.
Equity is the difference between how much your property is worth and how much you owe on it. For example, if an appraiser determines your rental is worth $400k and you owe $150k, then you would have $250k in equity. Lenders allow you to borrow up to 70-80% of that equity in the form of a mortgage. If you own a property for a few years and it appreciates in value while you’re also paying down your mortgage, then your equity can grow pretty quickly.
You can access the cash trapped in your rental properties for any purpose: down payment on another property, pay off debt, buy other assets, start or grow a business, pay for repairs or renovations, keep a reserve fund, or blow it on a vacation (not recommended!).
The benefit is that you can access this cash tax-free. The downside is that there are fees required when doing cash out refinances, so make sure it will be worth it before accepting the new loan terms. I had a specific need for a lump sum of cash, so I ran the numbers and decided a refinance made sense.
While researching lenders I came across Kiavi. Their website noted several advantages of using their service, including an easy online application process, minimal documentation requirements, and quick closings. Most of the reviews I read online confirmed these claims, so I went ahead and applied.
From the start I found the whole process to be very easy. Everything really is done online, and they have a dashboard showing your progress and the next steps to complete. They responded quickly to all my emails and were clear in their communication of what was needed from me to move to the next phase. They provided loan terms and were up front about all fees, which included an origination fee of 1.25%, a $999 service fee, pro-rated interest, and third party fees from the title company.
Their initial estimate was 30 days to close from the loan application date. We would have easily hit that mark if it weren’t for the tedious process of obtaining a Certificate of Good Standing for my LLC from the state of New York. That took two requests and about 20 days to receive, which delayed my closing by about 10 days. Other than that, the entire refinance went incredibly smoothly.
My actual timeline is below. My loan application was submitted on 6/30 and closed on 8/10. As you can see, the only delay was in the “Processing” step because of the Certificate of Good Standing.
Here are the 10 steps needed to complete a DSCR refinance with Kiavi:
- Create an account on Kiavi.com and indicate you want to do a cash out refinance
- Enter your property information
- Upload current lease agreements
- Kiavi will calculate your Debt Service Coverage Ratio (DSCR) based on your rental income
- Pay for property inspection; Kiavi will select the inspector and you will need to coordinate an appointment time (notify your current tenants, if needed)
- Select a Title company or use the one Kiavi recommends (I used their recommendation to speed up the process, and they were great)
- Provide your property insurance information
- Provide your business entity information and documentation (EIN, formation documents, operating agreement); loans cannot be in your personal name
- Provide your personal information and a personal guarantee
- Sign your closing documents with a mobile notary
Kiavi also has other loan products for fix-and-flip bridge loans, new construction loans, jumbo loans, and the DSCR loan that I used. They were recently acquired by Figure, but they sent an email ensuring their platform is fully operational and that they are actively originating new loans.
If you’re interested in utilizing their service for your next purchase or refinance, you can use my referral link to get $350 off at closing.
