All Forum Posts by: Thomas B.

 @ AJ Exner can you break-down in layman's terms what each of these options would look like?

I planned to do a Cash-Out Refinance to a 30-year Mortgage, paying off my 401K Loan ($35000, $600 per mo.) and pay-down / pay-off my HELOC ($118000, $1000 per mo). Without cashflow coming from at least one of these units, would I be able to qualify? Would future income be factored in?

The HUD set the SAFMR (fair market rent) for my zip as $1230 (2/1), $1000 (1/1), and $930 (eff), although they recommended that I request 10-20% over that amount.

I was considering moving into the rental property hoping to have an easier time refinancing, a 10% LTV, and possibly better rates. From my research, I would need to stay there for 1 year before moving back to my current house.

Would there be any trouble with my HELOC if I moved my primary residence to the rental house? The bank wouldn't call it due would they? I assume I would need to change my homestead exemption to the rental as well?

Investment Info:

Small multi-family (2-4 units) buy & hold investment.

Purchase price: $99,000
Cash invested: $130,000

1947 SFH 2/1, previous owner converted the single car garage into 1/1 apartment and a portion of detached 2 car garage into an efficiency. Extensive renovations mostly complete, just needing interior finishes. Plan to rent through Sec-8 due to neighborhood demographics, proximity to bus line, etc.

What made you interested in investing in this type of deal?

Cashflow.

How did you find this deal and how did you negotiate it?

Bank-Owned property. Previous owner passed away. In retrospect, I should have stuck to my initial offer of 60K, knowing it needed foundation, roof, and electrical. Got emotional when they said there were other offers higher than mine. I think realtors are out-right lying when they use this line... If not, I'll still stick to my guns next time.

How did you finance this deal?

All cash, using funds from a HELOC on my primary residence. I retrospect, this was a mistake since I am now in a cash crunch at the end of renovations. Next time I'll use Hard money lending for the initial purchase.

How did you add value to the deal?

New roof, foundation repair, and updated the electrical. Extensive renovation.
Bought as SFH, going to rent out as tri-plex. Sec-8 rents beat open market rates and the waiting list for prospective tenants is huge.

@Jay Hurst: what do you suggest? I am a newbie investor, so I have no experience outside of the conventional mortgage I have bought my primary residence with. 

I am all ears! I am here to learn.

I'm hunting for a local bank to refinance the balance I have on my HELOC and 401K that I used to purchase my 1st rental property and renovate it. The estimated market value is $165K and I have $130K outstanding between the 2 debts. I'm looking for a 30-year fixed rate and all I can find so far is 15-year with higher interest for my current cash-out situation.

I read of a strategy somewhere on BP where I can Write a Promissory Note and a Deed of Trust, to properly segregate the business from my personal finances and that when refinancing, the bank would treat it as any other mortgage. Am I missing anything? Can I do this all myself or do I need an attorney?

Do I need to create an LLC to accomplish this, or is it doable as a Sole Proprietorship?
 

If I could cut my debt service in half, I could easily self-fund the remaining portion of the 2/1, rent it out, and use the NOI to finish the other 2 units even quicker.

Lesson Learned: Never use a HELOC to do a 100% cash purchase! 30% down then finance the rest with bank or PM.

Finished Electrical Rough-In on the 2/1 unit. Awaiting insulation & drywall before installing outlets and lighting fixtures. 

With several recent rate hikes, my HELOC is eating me alive! All said, I am at $1600 a month debt service between my HELOC and 401K Loan! I panicked and dumped all available funds back into the HELCOC to paydown the balance what little I could.

Shopping around at the local banks and found Navy Federal CCU really helpful and willing to work with me to get a Construction Loan. After some misunderstanding on my part, all they could offer was $80K, which was great but they also required that I use a GC from their approved list. 

I could only get 2 to bother coming out two to look and another to quote me without a walk-through. The lowest quote was $113K!!! They couldn't understand I am only renovating for minimum maintenance, and to pass Sec-8 inspection, not max-resale value. 

All I want is to refinance my available debt on this project to a lower rate fixed interest product... preferably with a 30-year term. I would also consider a 20-year note if the interest was low enough. 

 So far, I have not heard from any local banks offering anything other than 15-year mortgages. 

Another hurdle seems to be their reluctance to do a cash-out to pay off the HELOC. I believe I can write a Deed of Trust to record the outstanding balance of the HELOC and 401K loan as a mortgage from my "Personal Self" loaning it to my Sole Proprietorship. The bank would then see it as a simple refinance rather than a cash-out, right?

Well... bad news.

The loan officer finally got back with me and said the underwriters would only approve me for $80K total. My lowest estimate is $113K. I would be on the hook for the 1st portion and the bank would cover the last $80K of the renovation. 

I need to show proof of funds for the $30K before proceeding. I can only cobble together $20K without getting any additional debt. I do not want any additional monthly holding costs!

What options are available to refinance the house "as-is"? Online estimates say it is worth about $160K. Can I get a conventional mortgage with a 30-year term w/ fixed interest? Do I need to disclose the HELOC used to purchase the property?

I would like to Pay off the HELOC, improving my monthly finances, while still being able to tap it to compete remaining repairs as my own DIY GC, rather than hiring a CG and eating over-inflated costs. I'm fairly confident I can finish the renovation for about half what I have been quoted.

@ Drew Sygit, it might have been a Freudian slip. I will definitely ask him about not paying off the HELOC. Unfortunately, the Loan Officer I was working with (the only one that handles investment properties) is on vacation till after the MLK holiday.

@ Jonathan Taylor @ Drew Sygit 

They will pay off the HELOC 1st... even though it is on my primary residence, not the investment property?

I don't have the exact figures in front of me, but I have about $100K out of my HELOC. With the additional square footage (brought up to code), at $114 per sf, the ARV should be roughly $222300, not including the In-Law Suite in the detached garage.

If the bank bases the 80% Loan to Value off of the ARV, it will amount to $177,840. The only GC I have received a quote back from came in at $113,650. The quote provided would maximize the resale value; however, it could likely be pared down considerably and still meet section-8 requirements.

The remaining financed amount could pay down the HELOC, leaving an unpaid balance of $35810. Easily handled by the cashflow. Once again, the HELOC is on my primary residence, not the income property.

If the HELOC is paid off 1st, I would not be able to cover the $113K rehab.

Most of the banks I spoke with had a shorter term with their cash-out products. Once complete I will definitely want to refinance into a 30-year fixed to improve cashflow. 

Is there another way I could finance the renovation where the HELOC is paid 2nd, or where it is not looked at.

Would paying off the HELOC be due to Debt to Income being too low otherwise?

Thank you for helping me get a grasp on all of this!  

I am learning a lot on my 1st Investment property!

I initially purchased it as a 2/1 single family needed a complete gut job, using a HELOC from my primary residence with the enough left over to do a budget conscious renovation. Being a newbie, I underestimated some of the expenses of such a big project.

Navy Army Community Credit Union has approved me for a "cash-out" construction loan to finance the rest of the renovation, payoff my HELOC, and afterward will convert to a 15-year mortgage @ 8.65%. Will the bank pay off my HELOC 1st before funding the renovation or pay down the balance with what remains?

The bank is stipulating that I use a General Contractor from their approved list to handle the remaining work. The only quote that has come in yet is for $113K to have a brand-new quality house. She and her husband own a property management company, do general contracting, and flip houses. I know them personally and they do real nice work... maybe too nice for this neighborhood. I am getting other quotes, but they haven't come in yet. 

How does the After Repair Value play into the approval process for such a loan? At what point does the bank do an appraisal to figure the ARV? I think the square footage is way under quoted since the previous owners converted an attached garage to a master suite and built a mother-in-law suite in back of the detached garage. Without knowing the ARV, how can I tell if the outrageous renovation costs are worth it?

I can still cashflow. I just need financing. Everyone is still in Holiday Mode, including the GC's and the loan officer I am working with. He is out for another week, so I can't pick his brain. 

Any insight is greatly appreciated!