Starting out and not sure the best thing to do

7 Replies

Hello fellow real estate lovers. I'm stuck at a cross road in a sense. I have a property in Jacksonville, North Carolina that I've renovated. It's been on the market for sale and had an offer that fell through. Now it's time for the back up plan of making it a rental. My future goal is to have rentals, I just don't think now is the best time. I have a hard money loan and I need to get out of it with either a bridge loan or a 20/30 year fixed loan. I'm open to selling to an investor. I do have a property manager who just signed a lease for this property for two years. ARV is 110k, rent is at $1,000 a month. My property manager is charging 10%. I've done the numbers cashing out with a rental loan, at 75%, that would be $82,500 roughly making a monthly payment around $577. So with all that and setting $50 a side each month for maintenance the monthly cash flow would be around $273. Any guidance is appreciated.

@Jenna Bamlet

How much do you owe the hard money lender? I'd find a way to cover that first and foremost, so if you need to keep trying to sell it to cover that loan then keep trying (use a different realtor if you have to). Otherwise like you said you could make it work as a rental that at the very least breaks even with property management and all the variable expenses included. If it's too much of a headache then sell it and move into the next deal! But if the refinance is enough to cover your hard money loan and you come out with a rental property that breaks even, that sounds like a pretty sweet deal given the circumstance! Hope this helps. Cheers!

@Kyle Cooper I have about 75k on my hard money loan and with the numbers I've been getting from rental lenders I would be breaking even. I do plan to keep it for sale but now I'll have a renter in there for two years. Thank you for the input, much appreciated! 

@Jenna Bamlet

No problem! If your goal is to acquire rental properties then you're on the fast track using the BRRRR method. I'm sure you've reached out to multiple lenders but assume conservatively you can get 70% LTV you're at $77,000 and you'd be paying back the hard money lender and come out with a rental property. Now you have a good relationship with that lender and can use them again for your next BRRRR! Same situation if you just sell the property and pay them back, but without the rental property you wanted and also with a tax bill later on. Again this is all personal based on your goals but I think either way you'd come out with some positive things to show for it!

So if you are going to rent it out but keep it on the market the thing you will want to be careful of is if you do refinance it into a long term rental loan is that they may have a pre-payment penalty. So if you refinance it into a rental loan and then 3 months later get an offer to sell you may be subject to a pre-payment penalty with the lender due to selling. I think you should take a look at the numbers if you keep it on the market vs refinancing it and run the numbers on if there is a pre-payment penalty or how long you would need to keep it to avoid a pre-payment penalty. 

@Jenna Bamlet , I agree that it not a great position, but not the worst position.  I think there is value in having a tenant and selling it as a turnkey rental to an investor.  But if owning more rentals is your goal, then getting the hard money lender out and some of your equity back is not a bad position, especially given the entry prices in most markets today.

Of course, as Michael mentioned, you need to understand any prepayment penalties that might come with the loan.  In my experience, they are not terribly high, but they will reduce your profit if you sell.  


@Michael Glist @Evan Polaski  The pre-payment penalty is something I have been asking lenders about, thank you for looking out! I'm still trying to get a grasp on how rental loans work. My only thing holding me back and feeling nervous is if I were to do a cash out I'm not entirely sure that would cover closing cost and I still have other investments to pay back.  

Originally posted by @Jenna Bamlet :

@Michael Glist @Evan Polaski  The pre-payment penalty is something I have been asking lenders about, thank you for looking out! I'm still trying to get a grasp on how rental loans work. My only thing holding me back and feeling nervous is if I were to do a cash out I'm not entirely sure that would cover closing cost and I still have other investments to pay back.  

 Jenna, typically when doing a cash out refinance you can have the closing costs either rolled into the loan or paid out of the cash out proceeds. Of course there may be items that are out of pocket costs such as an appraisal but the rest of them you should have the ability to do one of those two options. 

Also one other thing to consider is depending on the loan you get and the lender you use you will need to show reserves. Some require 6 months reserves for each property you own and some only require you to show 6 months reserves for the property/properties they are refinancing.