Re-financing rehab costs

[James H.]

I recently shared about my first deal consisting of a rental unit that I have 13K in cash and about 12K in consumer debt (interest rate 12-14%) invested. The rent is 550/month and it is currently leased. I have had it for about 2.5 months.

Several BP members suggested I get a HELOC, to reduce my interest rates on the borrowed portion. I can't find a bank willing to do that on a rental. So far that appears to only be an option if it is my personal residence.

Right now, the property barely breaks even or is slightly negative (using 50% rule)in cash flow until the credit card debt is reduced over time. Our current plan is to just apply all the net rents (cash reserves already established)and all the extra money from our paychecks to pay the debt off in about 12 to 18 months. Then the property will be free and clear and cash flowing nicely.

But at that point, it will be a year to a year and a half down the road and we will be started back at square one just starting to save up for the next deal. So in all, it could be 2 to 3 years before we are ready to act again. I really enjoyed the process of my first deal and would like to do another one sooner...

If I get a mortgage on the house, I'll probably be looking at 3000+ in closing costs, which is a lot compared to the amount invested. And that will affect my debt to income ratio for future financing. Plus I don't want to take such a large mortgage that the property is not profitable. The mortgage payment would have to be around 150 or less to meet my minimum long term cash flow goals for the property. So, it just doesn't look practical to do a mortgage. I think the house would appraise around 30 to 40K, maybe as high as 50K.

What are your thoughts on refi strategies or strategies to move forward quicker.