Looking for Advice - Opportunities in Financing for a Beginner

Denver, Colorado
Creative Real Estate Financing
4yFollow

Looking for Advice - Opportunities in Financing for a Beginner

Michael Semcken
Rental Property Investor · Denver, CO · Member since 2022 · 12 posts · 3 votes

I am currently renovating a duplex in Denver, Colorado.  I purchased the duplex in May and began renovations in June with a completion date around mid-September.  

After the renovations are complete, I plan to get an immediate reappraisal and rent out one side of the duplex while I live on the other side.  My goal is to purchase another multifamily to move into over the next 6 months to a year using the equity in the duplex. 

In terms of finances this is where I stand: 

- 120,000 in HELOC for the renovations - 10 years of interest-only payments

- 30,000 in credit cards that have been put on payment plans over the next 18 months - overall I will only pay an additional 3000 paying off the CCs this way

- Potential property value increases between 150,000 to 300,000 after appraisal (based on loose comparable sales of properties in my area)



The way I see it I have a couple of financing options for the next property assuming I use the potential new property value to do so, which leads to my question for the BP forum - 

How should I finance the next property?

- Do a full refinance and pull the cash out of the property for the next downpayment?  (My current rate is 4.75%)

- Up the value of my HELOC and use that for the next downpayment?

- Any other lending opportunity I have not thought of?

There are a lot of pros and cons to each strategy, but I'm interested in hearing your opinions.  Has anybody used these strategies?

Also, given the current status of the housing market, does anybody see a real estate bubble popping over the next year?  And if so, where would you position yourself if you were in my shoes?

1Reply
33 views

Most Popular Reply

Andrew PostellPro Member
Lender · Fort Worth, TX · Member since 2016 · 8k+ posts · 6k+ votes
4y

@Michael Semcken I'm not a fan of waiting.  If you waited 1 year ago, you are worse off now.  If you waited 6 months ago, you are worse off now.  I know what it looks like now - so I would suggest at least getting preqalified now.  It's free, its good for 4 months, and it tells us the information we need to make a decision.  Just get the "fill in the blank" portion of your scenario completed and I think that will tell you what to do.

3Reply
See this reply in the discussion

9 Replies

Jump to latestLatest
  • Caroline Gerardo
    Lender · Washington DC · Member since 2015 · 2k+ posts · 2k+ votes
    4y

    Credit cards on payment plans what do you mean by that phrase?

    1Reply
  • Michael Semcken
    OP
    Rental Property Investor · Denver, CO · Member since 2022 · 12 posts · 3 votes
    4y
    Quote from @Caroline Gerardo:

    Credit cards on payment plans what do you mean by that phrase?


    I have a credit card with Chase Bank that if you have a large enough purchase you qualify for a My Chase Plan which allows you to pay off a purchase over time in fixed, equal monthly payments with no interest, just a fixed monthly fee.   I'm a cash man and typically do not like using credit cards, but unfortunately, I had to replace a sewer line and a whole fence on the new property.

    0Reply
  • Caroline Gerardo
    Lender · Washington DC · Member since 2015 · 2k+ posts · 2k+ votes
    4y

    Worried was credit counseling which crashes your FICO. Chase did a few inquiries on the score pulling it down about 4-5 points for each hit. Do not apply around to decrease score. Do not close accounts.

    4.75 is not a rate I would lose sleep over changing it to market rates. Is your HELOC variable? Max is 18% ?

    Who is HELOC? maybe try at Synchrony or Huntington when you are ready and get a fixed larger HELOC and then look at blending whatever that rate is with your 4.75. No one can tell you what rates will be in the future.

    Keep ticking away at the credit cards to get your score up. Get the balances below 68% of the lines.

    2Reply
  • Michael Semcken
    OP
    Rental Property Investor · Denver, CO · Member since 2022 · 12 posts · 3 votes
    4y
    Quote from @Caroline Gerardo:

    Worried was credit counseling which crashes your FICO. Chase did a few inquiries on the score pulling it down about 4-5 points for each hit. Do not apply around to decrease score. Do not close accounts.

    4.75 is not a rate I would lose sleep over changing it to market rates. Is your HELOC variable? Max is 18% ?

    Who is HELOC? maybe try at Synchrony or Huntington when you are ready and get a fixed larger HELOC and then look at blending whatever that rate is with your 4.75. No one can tell you what rates will be in the future.

    Keep ticking away at the credit cards to get your score up. Get the balances below 68% of the lines.


    Oh yeah, thanks for checking.  I'm not sure what credit counseling is, but I'll be sure to avoid it if it comes up. I definitely don't plan on closing my credit cards either.  Need to keep that credit history alive! Haha

    I'm really happy with the 4.75% for the mortgage as well, and even if I do a cash-out refi at 6.8% that's not too terrible. My current HELOC is with Westerra Credit Union and it's a variable rate. I'll take a look at Synchrony and Huntington to see if I can get a larger fixed-rate HELOC when the time comes, thanks! I really do want to limit my credit inquiries as much as possible so this helps. Also, the user experience with Westerra is not as friendly as I think I would get with a bigger company.

    Once the renter is in, my wife and I will be able to apply more cash to pay down the credit cards ASAP.  Even though I put them on a plan that lasts 18 months, we're hoping to have those completely paid off in 6.  

    0Reply
  • Andrew PostellPro Member
    Lender · Fort Worth, TX · Member since 2016 · 8k+ posts · 6k+ votes
    4y

    @Michael Semcken the biggest thing here is that we need you to get prequalified for your refinance step.  That's pretty important to what you are asking.  It sounds like you already have acquired the credit card debt?  If so, then your credit would have taken the necessary hit.  But if you haven't put debt on your credit card I would HIGHLY suggest an alternative.  But if you have already done it, then there's no going back.  But get prequalified.  That will answer the question of "how much money can I get out of my home".  Hope that makes sense how I am describing it.

    1Reply
  • Michael Semcken
    OP
    Rental Property Investor · Denver, CO · Member since 2022 · 12 posts · 3 votes
    4y
    Quote from @Andrew Postell:

    @Michael Semcken the biggest thing here is that we need you to get prequalified for your refinance step.  That's pretty important to what you are asking.  It sounds like you already have acquired the credit card debt?  If so, then your credit would have taken the necessary hit.  But if you haven't put debt on your credit card I would HIGHLY suggest an alternative.  But if you have already done it, then there's no going back.  But get prequalified.  That will answer the question of "how much money can I get out of my home".  Hope that makes sense how I am describing it.


    Excellent, so from a timing standpoint it sounds like I should apply for the prequalification in 6 months when the CC is paid off to limit my credit checks.  Do you think I should do the reappraisal immediately after my renovations are finished or when I go for the prequalification to maximize the value in the home?

    In addition, after the reappraisal is done, would it benefit me more if I increase my HELOC for the next house downpayment or do a cash refi?

    With all the chatter of going into a recession - and potentially another housing market downturn - I want to make sure that if it happens, I can time my finances right to possibly buy some multifamilies at a lower price. 

    0Reply
  • Andrew PostellPro Member
    Lender · Fort Worth, TX · Member since 2016 · 8k+ posts · 6k+ votes
    4y

    @Michael Semcken I'm not a fan of waiting.  If you waited 1 year ago, you are worse off now.  If you waited 6 months ago, you are worse off now.  I know what it looks like now - so I would suggest at least getting preqalified now.  It's free, its good for 4 months, and it tells us the information we need to make a decision.  Just get the "fill in the blank" portion of your scenario completed and I think that will tell you what to do.

    3Reply
  • Tanner PileBusiness Member
    Real Estate Broker · Colorado Springs, CO · Member since 2019 · 389 posts · 326 votes
    4y

    Hey Michael, 

    Have you looked into refinancing and then paying off all your debts? Then possibly doing another HELOC or using extra funds from the refi to make your next purchase or even using the rental income to save for the next purchase?

    There's many routes to take, and may take some math to figure out which one is best and saves the most money. 

    Tanner Pile4.931 Reviews
    WebsiteView Page
    1Reply
  • Michael Semcken
    OP
    Rental Property Investor · Denver, CO · Member since 2022 · 12 posts · 3 votes
    4y
    Quote from @Tanner Pile:

    Hey Michael, 

    Have you looked into refinancing and then paying off all your debts? Then possibly doing another HELOC or using extra funds from the refi to make your next purchase or even using the rental income to save for the next purchase?

    There's many routes to take, and may take some math to figure out which one is best and saves the most money. 

    I haven't looked at refinancing yet, but I plan to in a couple more weeks when my renos are done on the duplex. Depending on how much the property appreciates I figure I can either refinance the whole property or expand my current HELOC and pay off the credit cards and look for another property.

    0Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free