I need help with lender in Raleigh?

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Adam Ward · Answer

@Joseph King If you didn't already own this property, would you go purchase a $190,000 house that rents for $1175?  Why not sell this one and buy 2 where you could double your income with the same investment?

Christopher K. · Answer

Joseph -

My $0.02 .. first off, I'd say both Reaz H. had solid advice/comments.

Assuming your #'s are accurate (namely - what it's currently worth), you have a good equity position in the property. You're obviously upside-down from a cash flow position, which is never a great thing in and of itself obviously. But you are where you are and I don't think Reaz was totally off when he suggested you could stay with the loan you have if you could afford to absorb the negative cash flow and in 9 years the house is paid off.

You responded saying that you could sustain the negative cash flow for another 9 years but that it didn't make sense to. Sure you can extend your loan on the property by 15, 20, or 30 years by refinancing and increase your monthly cash flow by a few couple bucks or so probably (I haven't run the #'s on your specific situation) but you could have a completely paid off rental property in 9 years worth a couple/few hundred thousand dollars that pays you at least $1200-$1500 every month (market rent will almost definitely increase over 9 years) every year for the rest of your life. This isn't exactly a nonsense scenario in my opinion. Though you'd perhaps have to pay about $27k in negative cash flow worst case over the next 9 years ($250/month neg. cash flow x 12 months x 9 years), this money isn't wasted - a large majority of it is paying down what's left on your mortgage on an income producing asset. Your tenant is paying the other $127k ($1175 x 12 months x 9 years), which is paying for your taxes, insurance, and paying off the majority share of what's left on your mortgage. None of these numbers even factor in rent increases, which may be warranted or feasible now and/or in the near future (likely multiple times over 9 years). So my guess is, even if the $1175 you're charging now is the real 'market rent' and you can't really raise it immediately, you'd likely be able to raise the rent enough realistically over the next 3 - 5 years to at least start breaking even on your debt service/capex. Which again, would mean you're that much closer to having a paid off rental house that pays you around $15k a year or more, after taxes, insurance, and capex for the rest of your life.

Now, all of that said, if short(er) term cash flow is a priority for you and you don't mind exponentially extending the time by which your loan will be paid off on that property by several years or by decades - then by all means, do that. I'm not saying I think that's a bad move either. Yes, your tenant will be paying off your mortgage in that scenario too but it'll just take A LOT longer for 'them' to pay it off. Yes you should be cash flowing in the mean time, which is certainly good .. but you'll obviously be cash flowing exponentially more if/when you are renting out a paid off house.

So, are you looking to play the short game or the long game with this investment? You can refi and probably cash flow around $1500 - $3500 or so a year for the next 15 - 20 years until it's paid off. Or you can pay out of pocket a couple thousand a year for the next few years, then probably more or less break even for 4 - 5 years and then cash flow $18k a year from then on? (which will likely only increase over time as rents go up gradually)

I realize that so far, none of this has addressed your stated desire to pull cash out on the refi and reinvest. I agree with Reaz that cashing out equity works against your effort towards positive cash flow UNLESS you can actually use that money to bring you a higher return. And I mean no offense whatsoever but based on the negative cash flow deal you're in now and some of your assessments and replies in this thread, I suspect that you might be in a position where you'd benefit from further research and continuing to educate yourself on investing (this forum, local REIAs, networking with other investors, etc), as well as the specific local market you're looking to invest in before you just pull cash out and potentially find yourself in another negative cash flow situation and/or upside-down equity position by either not knowing the market you're buying in well enough or by not being experienced enough to know when a deal is really a deal and when it's not. My assumptions could be totally off here and if they are, then I apologize. Just trying to offer some friendly advice.

I personally think your first plan of action should be to determine what the true market rent is for your property. If you have a property manager on it, ask them to pull some rental comps and do an assessment on your property to see if you could perhaps raise what you're charging in rent on it now. Then probably get a 2nd (or 3rd) opinion for another PM company or local agent that's versed in the rental market to make sure you are getting accurate #'s/comps/data from your current PM. Once you have a good grasp on what the real market rent currently is on it, your analysis and options of what to do next with the property might change.

Lastly, from another perspective, I also agree with @Adam Ward. If it were me, I'd also be strongly considering selling the place if it was a $190k property that only rented for $1175 and I had $100k in equity in it and using that money to buy one or two (or more) good solid SFR or MFR investments that could net you a lot more in cash flow. But again, for me, this too in large part goes back to making sure that you're experienced and educated enough to be able to locate and identify what a good deal really is and understanding the local market you're buying in (or having someone you trust that does) or else you could wind up in the same situation again.

Gordon Cuffe · Answer

@Joseph Kingyour property manager will tell you if and how much you can raise rents to. You might want to think about selling the house for 190k, doing a 1031 exchange. pay no capital gains.  tax the approximate cash of 77k and buy a 4plex for 250k to 280k in another city and get considerable cash flow. You could get cash flow and still take out a 15 year loan.

Reaz H. · Answer

I think of positive cashflow as a means to holding the property till I am ready to sell (hopefully at a better price). In your situation, I'd be thinking about whether I can sustain the negative cashflow for another 9 years because after the mortgage is paid off, you'll have positive cashflow. Now I can't tell much about your situation because you've not stated your other expenses such as taxes, maintenance or capex. But otherwise if you feel that you don't want to lose cash regularly and use that cash for other deals, you may want to re-fi to a 20 year or another 15 year. The rates are still low and you'll get a good rate because you have so much equity in the property. I wouldn't recommend a cash out unless you have opportunities to deploy that cash at a higher rate than the new mortgage. A longer term will help towards positive cashflow. Cashing out equity works against that effort.

You should raise rents to what the market and local laws and regulations allow. For example if you're in rent controlled area, you may only bump up a little bit at a time. And if you're already at the high end of the market you're risking vacancy. Tenants may put up with a little higher than market rent if the landlord is nice and because moving is a pain. But if you're price your rentals too high, they will vacate. So be in judicious in your decision to raise rents.

Patrisha Leybovich · Answer

Consider a 1031 tax exchange.

Account Closed · Answer

I got a good private mortgage lender I use here in Charlotte.  PM me and I can pass along his information.  I have done several deals and he is pretty fair and gets things done.

Mindy Jensen · Answer

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Justin Brown · Answer

What banks have you spoken with so far? Have you asked your current lender for a refi? I'm getting ready to purchase and have been talking to a few banks and have a list of smaller banks lined up to call.  However, you might get better rates on your property if a larger bank is willing to refi for you.

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