Just purchased double 4-Plex Seller Financed hoping to Refinance

[Cody Begg]

Hey All BPers,

So, I stepped outside of my comfort zone in investing thanks to BP Podcast inspiration!  I was inspired by all of you saying "Just Do and you will learn".  

I found a property that passed all of my litmus tests: numbers listed below, but here is my question.

I am relatively confident that I purchased a deal with some equity already built in, by seller financing the deal.  Now what I want to do is re-finance and possibly pull some equity or at least get out of the seller financing deal to lower my rates?  This is my first deal of this magnitude...Hoping for some direction and options!  

How do I refinance before the seasoning period? Or should I wait 6 months?

2 4-plex properties (side by side)

purchase price: $318,000

Estimated Appraised value $400K

Seller Financed on 2 liens 1st lien 80% LTV 20 year note at 9% second lien for 10% for 2 years at 9%

10% out of pocket.

Monthly Rent of $4,200

Annual taxes of $4K

Insurance of $2K

Self managing at the moment.

Any suggestions??  I would love to finance enough to pay both liens!

[Dante Pirouz]

So are you paying about $2K per month to service the debt, right? If you use the back of the envelope 50% rule for expenses and accounting for your debt service, that only leaves you a total of $400 per month in cash flow, right ($4200-$2100 expenses-$1700 debt service)? I try to look for at least $100/month cash flow PER DOOR which should be $800 per month for 8 units minimum after expenses, taxes and debt service are subtracted from gross rents. so maybe the price is too high or the terms of the loan are too steep. I would impress upon him it is in his best interest for you to make at least $100/door cash flow if you have a hope of making this a win win scenario for everyone.

The good news about refinancing is that if you write this up as 2 separate property deals, you could eventually do a residential refi in 6 months (seasoning). Otherwise you'd have to do a commercial refi which will have certain net worth, minimum experience requirements on your part, maybe that's not a problem for you though.

Also are the current rents at market rate or do you have room to increase the rents if they are below your local market average?