Skip to content
Real Estate Deal Analysis & Advice

User Stats

2
Posts
0
Votes
James Conley
  • Buffalo, NY
0
Votes |
2
Posts

5 Units Stabilized Looking for Next Step

James Conley
  • Buffalo, NY
Posted Aug 19 2015, 09:17

Okay! Sorry for the long post, but please bear with me. I'm trying to provide as much relevant info as possible.

So, over the last 3 years I purchased one Single Family at $30k (current debt $24k) now netting $11.5k in rents before debt service. 

And one Four Unit for $55k (current debt FHA 203 loan - $86k) now netting $28.5k in rents before debt service.

So consolidated holdings are $110k in debt (no prepayment penalties with either) and netting $40k annually before debt service. 

Right now I desire to grow the portfolio but am kind of sitting asset rich and cash poor. I dumped about $70k in between both places in renovations and capital improvements. 

I'm interested in hearing thoughts on where to take it from here to really grow the business. Here are the ideas I've considered so far and my pros and cons. But would really love to hear others thoughts:

1. Try to find a bank to do a small portfolio commercial grade loan (5 units combined) for an equity out refinance.

Pro's: 

- Potentially the highest loan dollars due to a commercial loan basing the LTV off NOI

Con's:

- Probably the highest interest rate due to small commercial loan (current loan interest on the properties is at 3.25%- 3.5%); difficulty in finding a willing lender; generally non-self amortizing terms meaning I have to refinance in 5 or 10 years; higher closing costs; couples the properties together, makes exit strategies a little more limited

2. Try to find a bank to do refinance both properties individually with a home equity loan. 

Pro's:

- If I go to sell down the road, I can sell the properties individually providing more exit strategies; I will still hopefully get a decent amount of cash out; interest rates will probably be lower than going a commercial loan route; the market has appreciated about 150-200% since the time of purchase on the properties; self amortizing terms; lower closing costs

Con's:

- Probably not going to be able to get max dollars; still tied down more to market comps rather than NOI; Debt to Income ratios might prove to be a barrier; potentially difficult to find a willing lender with a good loan

3. Sell one or both the properties

Pro's:

- Immediate cash out upon the closing

Con's:

- loss of the "passive" income; loss of an asset(s); totally counter intuitive to the business model, but I will remain open minded to others experiences and advice

4. Sit and wait, don't try to sell or refinance

Pro's:

- No closing costs; still have steady income and relatively low debt to value

Con's:

- slow growth model; missing potential opportunities; not allowing me to try to take the business to the next level

5. Try to find a new 5+ unit multi-family deal and try to source a hard money lender or team of investors for financing 

Pro's:

- still have steady income and relatively low debt to value on my current properties and good cash flow

Con's:

- harder/impossible to maintain 100% ownership; expensive money; difficulties in finding the right investors and or deals to make the model still work with nice high returns

Whew! Alright ... if you're still reading this I already thank you for your time.