Need bigger brains to think about financing options...

[Deborah Burian]

As in bigger brains than mine to help me think about financing options for my multi-unit...

The property was purchased with seller financing of one year, bank is on board to convert note whenever I'm ready. I am reasonably confident that when the structural repairs are done, some exterior paint is updated, occupancy is at 80-90%, and a few interiors are completely renovated, the properties will appraise for an amount that will allow me to do whatever makes sense to me.

For purposes of this discussion, let's call rents $4500/mo. Seller financed note through June 2014 is $1251/mo. 30K upfront costs, including Capex came out of my IRA. Any refinancing will result in the interest rate going from 5% to 6% but that's going to happen in June 2014 regardless.

Incidentally, the IRA cash came out in two chunks and it's too late to return the first one.

These are the choices I see, there may be others.

1) hold the way it is. Low payment, great interest rate, life is good. Risk - markets change, maybe my banker won't love me as much next June. Mortgage $1251/mo.

2) refinance for balance of note, call the upfront cash an investment, eat the IRA penalties and move on. Mortgage $1334/mo. Cost of early conversion to higher interest rate, about $600.

3) refinance for balance of note plus 15K that could be rolled back to IRA, eliminating a portion of the penalty and restore the 15K to the IRA. Mortgage $1460/mo. Now I'm below $100/door but still profitable and gaining a significant tax advantage.

4) refinance for balance of note, plus 15K for IRA plus 10K to essentially create a property-financed emergency fund. Mortgage $1545/mo. Now I'm further below $100 a door in the short term but the leverage may well be worth it and as we continue to improve the property, the $100/door comes back.

5) and so on, all the way up to 100% self-financed property at a mortgage of $1586/mo

6) take a little early profit for $1629/mo

etc.

Still ultimately more interested in cash flow than short term profit so the sweet spot is probably somewhere in the middle. Any feedback would be greatly appreciated.