Newish Investor in a Tricky Situation

[Javis Ray]

Hello all, my name is Jay! 

I've been churning through the Bigger Pockets book lists (Rich dad/poor dad, BRRR, Short-term rental, Long term wealth and Investing in Real estate with no money down) and podcasts, so, I felt it was time for my first post!

My situation:

I'm a Concept artist at a video game company, with a few side gigs that primarily involve art. The short story is, I'm starting to hate making art because it's so inextricably tied to income (or the lack thereof.) My parents flipped houses and had rental properties when I was growing up, so when my wife and I moved out of our first home, we followed in their footsteps and it became a rental. We made numerous mistakes but the property still has about a $400 a month cash-flow.

Since I discovered Bigger Pockets, I'm absolutely obsessed with real estate investing. I'd love to spring board off of our existing property to build our family's future and [hopefully] with the bonus of not being dependent on art for the majority of my income and subsequently fall back in love with making art again!

The puzzle:

As my rental property sits (With a long term "month-to-month" tenant) it only has about 15k equity. Our property management company has offered to do these repairs and have us repay the cost after the refi/sale. Our agent and zillow agree that our house should be worth about 140k once the repairs are complete (I should mention we owe 65k on the property with a monthly mortgage of $535.) Also, the rent is currently $200 to $400 below similar rentals in the area.

This sounds great except my credit is total crap. During covid, my wife and I lost jobs/took pay-cuts and struggled all around. We had to borrow money just to keep our primary residence. We're getting back on our feet but we missed/were late on many payments for the rental, which ironically is the major reason my credit is so bad at the moment. The broker I'm working with feels this is going to be nigh impossible to get any lender to look at us for a cash-out refi, for at least 12 months.

P.S. My wife has better credit but the rental is in my name only, as I bought it before we met.

The Question(s):

• If the only way to pull the equity from this home is by doing the repairs, then selling it, is this a smart play, considering the property is already a great cash-flowing investment?

• Do I raise the rent on the tenant and risk them moving out and having to do the repairs anyway?

• Is there some other heretofore unseen strategy I should be employing?

I welcome any and all insights!

And as this is my first post, I simply must say a huge thanks to everyone at Bigger Pockets! The website, youtube channel, podcasts, books and community are all such great resources!

Thanks,

~J

[Drew Sygit]

You've left out a lot of info!

Let's see, you owe $65k on a property currently worth $80k (you state $15k equity).

How much in repairs to get it to ARV of $140k?

What are the major repairs needed?

If your PMC is willing to lend you money to do the rehab and get paid back from closing, what rate are they charging you?

Will they lend you and let you pay back with rents over time?

Biggest question you haven't addressed - once you sell, how will you replace your rental given your bad credit?