House Hack Deal Inexperienced - Live In Rental, seeking private $

[Dain Cook]

Hi BP,

First post to BP, going out on a limb and I am desperate to complete this, "what I think" is a great deal now, but my scenario for funding is 4 to 6 months out of reach. I don't think this opportunity will be available. It may be available, because I fit into the niche that this deal presents. This will be a complex post, and I will do my best to keep it organized.

First and foremost, the funding solution that is 4 to 6 months out is a HELOC. I have 2 variables that cause the delay.

1) I need to improve my personal credit utilization %. I have a perfect pay history, but I have too high a balance on the cards. I was laid off a few years ago and I have not really entirely recovered. I was treading water, but I have broken through with a 60% jump in W2 income. 

My current credit score from experian is 668, per the bank I will doing the HELOC with. The banks level for HELOC is

> 680 = 80% LTV

> 700 = 85% LTV

> 720 = 90% LTV

My current home (524, naming it here, because "current home" will change) will more than likely appraise for $145,000. My loan balance is $102,400. Using the above plateaus here is line of credit available to me and approximate time I will reach each level:

2/2019: $14,000 

4/2019: $21,000

6/2019: $28,000

((145,000 x .8) - 102,000) and so on - appraisal may fluctuate along with paying down the mortgage, this is ballpark round numbers

The more time, the greater the line of credit. 

Here is the "out of box" plan I am attempting to see if it is possible.

The rental property (815, again naming it here) will be purchased using private money. Here are those real numbers:

Purchase price: 197,900

Owner appraised a few months ago @ 240,000

Rental Income: 2710.00

7 rooms, 340 x 2, 380 x 3, 420 x 2, 3 bed main unit @ 1,100 ( I will be living in the 3 bed main unit, increasing the rent per room by $10, and leasing laundry equip to increase revenue ie profit @ $50/month).

Expenses: 1950.00

Nicor/Gas: 175

Vacancy: 75

Advertising: 20

Insurance: 90

Maintenance: 60

Taxes: 620

Water/sewer: 180

Comed/elec: 400

Scavenger: 30

Real numbers provided by owner. There has always been a waiting list. 

2710 - 1950 = 760 - 1155 (long term mortgage) = -400 negative cash flow (round numbers)

I want to purchase the rental with private money (short term lender). I will not have any upfront cash, but looking to place the incentives at the end of the deal when I refinance with a long term lender. Kind of a BRRRR method with a twist. The below image shows me walking away with about 5,500.00. I will use that to make cosmetic upgrades to my current home, 524, and rent it out. It is a multi-family 2 unit property. I know my property, so for brevity sake I will keep the numbers short.

I will have a positive monthly cash flow of 800.00, and that is very conservative.

I would like to do the HELOC before I move from 524, and that will begin my BRRRR strategy, and include all the expenses associated with starting a Real Estate business. That still means I need to wait until Feb. If I can make this deal work without the HELOC, I will. The niche I fill here is I am willing to live in the 3 bedroom unit, while renting out the rest. That is why I think this property has been on the market for so long. I may be willing to gamble and move forward with this deal in Feb. The long term loan for my new primary residence will only require 5% down because it will be my primary residence. I confirmed with my bank this will not be an issue. The mortgage @ 524 will stay as is, and not be called out. It is a risk, but every CPA, lawyer, vlog, and the bank itself, has said they have never seen a loan called out in this type of scenario.

At the end of the day, here is what I see as the cash flow, if this deal can be made.

+800 from 524

-400  from 815

+ 400 cash flow

Cash I walk away with from refinance will fund the minor cosmetic upgrade @ 524.

Living for free, building equity on 2 properties (524 @ 43k & 815 @ 42k currently), upgrading my family's living condition slightly, owning/operating a 2nd property, building a relationship with private lender, and on and on and on....