The Interest Rate on your Investment can Make you or Break you

[Tracy Sharpe]

When my wife and I purchased 5 homes between 2005/2006, we knew that interest rates were important, but at that time, we were just happy that we could purchase 5 investment properties, especially when many people thought that there was no end to rising home values.

Furthermore, in our haste to buy these investment properties, even though several of the houses that we purchased were fixed rate mortgages and the others variable rate conventional mortgages, which varied between 3 and 7 percent, the lenders said, "Don’t worry about it, you can just refinance later on and get better terms and rates."

Unfortunately, in 2008, the real estate market began to change drastically and we were in trouble, along with many other investors. In our case, we were able to hold on to the 5 investment properties but our primary residence was over-leveraged. To add to the turmoil that was going on, job issues put us in a situation where we had to file bankruptcy and our primary residence went into foreclosure. Thankfully, we were able to keep all 5 investment properties. We moved into one of the properties and held on for a seemingly 7 to 8-year down cycle.

Although we made it through the down cycle and were able to keep our investment properties, in 2016, even though interest rates are low, we have found that because of our credit issues, we cannot take advantage of the low interest rates which is impacting our cash flow.

For example, we have one variable rate loan at 3.625 and the other a fixed rate loan at 7.375 percent interest. Even though we owe about the same on each house, the property that has a 3.625 percent interest rate is cash flowing, after expenses for $455.77, while the house with a 7.375 percent interest rate is cash flowing for only $278.42. They are both rented for the same amount $1300 and are valued about the same. That’s how the interest rate on your investments can make you or break you! We are so close to financial prosperity but yet so far away, as we continue to look for a lender that is really willing to help us.  

[Allen Fletcher]

@Tracy Sharpe

What steps have you taken to find lenders?

Have you tried looking at local banks and portfolio lenders?

What is the limit that a bank will lend to you?

Do you have documentation proving that these properties have cash flowed for the last 7 to 8 years?

I ask these question because I think you have a good position to get a refinance or even find other ways to reduce your mortgage rate with some outside the box thinking. I think you are less stuck than you think you are.

Allen Fletcher

[Tracy Sharpe]

Thanks for your encouragement. I agree with you. I just need to work smarter to find a lender. I do have equity. The properties were purchased with 20% down and the values have gone up. The traditional banks that I was more accustomed to dealing with such as Wells Fargo, BofA, Compass bank, have not worked out for me. The credit union that I looked at requires a credit score of 740 and only will refinance your primary residence. I am not there yet. I am sure there are more lenders to go to so I need to step up the game. I can have more income from my properties just from lowering my interest rates. My plan is to do one at a time. It's just getting the first one. Thanks for your encouragement. Sometimes that's all we need.

[Steve Vaughan]

Hi @Tracy Sharpe.  Thank you for sharing.  The GRC was tough on a lot of us.

Rates do matter. Hopefully new folks in this market are able to lock in fixed rates. What works in the 3s will definitely not often work in the 6s or 7s. I have one of those older (2004) mortgages at 7.99% still. It was a hybrid commercial loan with no PMI for a home in an industrial zone now. Anyway, I am aggressively paying it off. Only having $65k left, I can't justify the pain and $4k to refi.

I would recommend the same for you. Roll all available cash-flow into paying off your high rate investment. What is the balance of that thing? LTV? A commercial or portfolio lender may be able to help if the loan to value ratio is low enough. Have you checked with your local banks & credit unions?

[Russell Brazil]

I think your focus should be on doing everything you can to repair your credit. Unfortunately the main thing in repairing credit is time. What year did you declare bankruptcy. I think bankruptcy stays on your credit report for 10 years..so if that was in 2008, your light at the end of the tunnel isnt that far off.

[Tracy Sharpe]

The bankruptcy was discharged in 2010. It stays on 7 years and a foreclosure 10 years.

I live in Texas and I have 4 rentals in Texas. First home, balance is $69,125 value is $156,086. Second home, balance is $75,732 value is $160,221. Third home, balance is $72,805 value is $169,024. Fourth home, balance is $76,798 value is $151,014. All are cashflowing after expenses. My primary residence balance is $84,312 and the value is $178,052.

Local banks like Wells Fargo declined. Credit unions, I am beginning to research. It would be nice for everything to under one had with one interest rate.

[Tracy Sharpe]

Since we put 20% down on all properties, I never had PMI but some of the terms of the loans I had were not great. I was going to refinance the primary residence but they wanted to tack on $3500. I figured the best thing to do is pay extra on all the loans and get them paid for.

[Tracy Sharpe]

I will look up commercial portfolio lenders on BiggerPockets. I have never dealt with that type of lender. Maybe they can help me. Thanks everyone for your input. When you are in a fish bowl, it's hard to think outside the box. There is no shame in my game. I just want to get out of the rat race. 

[Steve Vaughan]

Originally posted by @Tracy Sharpe:

Since we put 20% down on all properties, I never had PMI but some of the terms of the loans I had were not great. I was going to refinance the primary residence but they wanted to tack on $3500. I figured the best thing to do is pay extra on all the loans and get them paid for.

 I was doing the 'pay extra on all loans plan' but found I wasn't really moving the needle on any of them.

I would ID the one that's the highest rate or otherwise least favorable and attack it with everything you were going to spread around.  Punch it in the face!  As it drops, you will get more motivated and find more to put against it.  Put a thermometer on your fridge and watch it drop.  Make it your mission, Tracy!