I need help in what I should do, what are my options?

75 Replies

I have a rental property I purchased cash using my credit cards. I purchased it for 18k rehabbed it and now it appraised about 35k. The interest rates went up and I really don't want to sell for 35k I'll break even on my credit cards and still have to pay taxes on it being sold plus closing cost and etc. I have a tenant with a 1-year lease paying $775. I want to learn lease options but please let me know what are my options and your comments are appreciated. This is my first rental. No skin in the game.

No skin in the game? It sounds like you have a boatload of skin in the game! Not only are you 100% financed, you financed it with credit cards. Even if they are low-interest or no-interest, that will only last for a short time and then you'll pay the piper. I would unload that property before the tenant trashes it or the market turns and count your blessings that you've escaped the inevitable.

If you want to create wealth, work for it. Get an extra job on the weekends and save up. Work for a promotion or put in some over-time. Get frugal with your spending. Sacrifice a little.

Is there any particular reason you want to sell and get out of it now? Because I don't think that's the best option for you. 

Seems to me that a property you bought for $18K, and did some rehab on (let's assume you spent another $10K on that), and is now appraised for $35K, and renting for $775.00 per month, is a pretty good return on your investment of $28K. If it were me, I would just keep the tenant in place, and continue using the $775.00 towards paying down the money used to purchase and rehab the home. Especially since credit card interest rates tent to be high, paying that down as quickly as possible would be a good idea. You don't want to be in a situation where the place goes vacant and you have to keep paying on the cards, so I'd pay it down as soon as possible. 

In the longer run, maybe you can look into a cash out refinance, to get some of the equity and appreciation in the property, out in cash. You could take that cash to go find another property, and do the same thing you did here. I think your options are good here, with a tenant in place who's paying $775.00 a month. I'd see if the tenant is interested in staying in the place for another year, maybe with a small increase in the rent (let's say from $775.00 to $800.00). 

@Delmas Edwards So there’s one area (first) I’d be looking at: What’s the monthly cash-flow? With interest rates rising (or have risen) on your credit cards odds are that monthly payment won’t be cheap. Even if you have a lease option you’re still responsible for the costs and could find yourself digging deeper and deeper. Or maybe you won’t. It’s impossible to know without the numbers.

The other thing I’d be asking is what kind of reserves you have. There’s always a chance the lease option won’t work out. The tenant leaves, the property is damaged, who knows. It’s real estate, “stuff happens” and that “stuff” can be a bad month for some people and much worse for others.

For whatever it’s worth, I’d probably sell the thing, break-even, and try again.

The other thing I would add to my earlier comment, if the tenant does move out, or if he doesn't seem great now and you want him to move out, make sure you screen very carefully for tenants. Be as picky as needed, given the conditions of your specific market. Lots of good resources here on BP around tenant screening. 

I used the 3 credit cards to fund this deal which the first card is APR 16.15%, Interest paid TTD: $990.33, second card Apr 10.49% Intrest paid YTD: $57.70 and a checking line of credit at 14.90%. So I'm paying $200-300 in interest fees on each cc monthly. And I tried doing a cash out refi but most lenders don't like Detroit's market and they don't loan under 50K of the appraised value. Not to mention my credit has taken a hit due because I used my personal cc to fund this project. I just wanted to not sit on the bench and not take action but I'm learning a lot.

I would sell I’m not sure how you’ll refinance this. Maybe @Derrick E. Can shed some light. I know he just refinanced a property and most of what he deals with is lower cost like what you are describing.

Your best bet is probably to call a bunch of banks until you find one

@Caleb Heimsoth thanks for the mention.

@Delmas Edwards I just took out a HELOC on one of my properties. It appraised for $37k and I got approved for 80% or $29k LOC. Bank was willing to do 90% if I wanted to.

I recommend sitting down and calling every single small bank in the area/state. I called around 20 small banks before finally finding one who does this. It was an easy process and I close the HELOC on Weds. When you call just ask if they do HELOCs on rental properties.

You have to either sell it or refinance to a much lower rate. There is very little chance you will make money when you factor in your credit cards interest rates. Sometimes selling it, even for a loss, is your best play.

If your credit score is not too bad, try applying for another new credit card (CC4) and do a 0% balance transfer. You'll still pay 3% of the principal each time doing it, but you can wipe out the first 3 credit card's debt. When the new (CC4) balance is due, use the first 3 credit cards you use to pay off the new (CC4) credit card if possible. Repeat as needed. Usually, this only works for someone with good credit. Here's hoping it's you.

Just saw that your credit rating took a hit so nevermind, what I said probably won't work. You can try instead as an improvisation to that strategy to pair up with someone like a significant other or family member to do balance transfers to pay off your loans. When it comes time for your partner to pay off their 0% credit cards, you do the same 0% transfer on your 3 credit cards to pay off theirs if it's available to you. Your partner will take some risk so make sure know to keep it honest. There's the risk that that option may not be available when it's your turn to return the favor.

Otherwise, looks like your best shot is to sell or do a rent to own type of transaction. Note that all your interest paid on the credit card is tax deductible so there might be an upside.

Ok, more info is required:

1. Are the tenants paying regular and on time?

2. What are your other costs besides the CC payments?

3. What are the total monthly payments on the CCs? 

If you still have cash flow on this, even with the CC payments, it may not be as bad as it sounds ( and it sounds bad). First off, you get to write off a bunch of costs here and deduct your interest costs from your taxes. So that becomes part of your realized profit. Second, you can be putting every cent of cash flow towards one of the cards (smallest balance first), which will increase your cash flow when paid off. Then you take the additional flow and put it towards the next card. $28k is not much to have in a performing property.

I would say don't panic. Decide if the property is worth keeping long term. If it is, get the smallest card paid off first and go from there. If not, put it up for sale and consider it a learning experience. You don't have much in this place, certainly nothing you couldn't buckle down and have paid off in 1-2 years maximum.

Remember one thing: when you make rushed decisions, or decisions under duress, they usually end up being some of your worst decisions.

Wow, defeatist attitudes around here. :) You could find a couple cards with zero percent balance transfer offers and move the balances to them to stop the interest charges. You typically have to pay a 3% balance transfer fee, so transferring $28,000 for example, you pay $800 or so, but then the bleeding stops and you have between 12 and 18 months (depending on the offers) to pay with zero interest charges. 

The $800 divided over that time works out to around $50/month, which will save you a boatload each month. I guess getting the cards may be a challenge if your credit is down, but you can check out some articles like this (https://wallethub.com/credit-cards/bad-credit-bala...) and see if you can find something to take the edge off. 

I wouldn't do the cash out refi or sell it, just try to get ahead of the interest charges and debt and you will be doing better soon. You actually made a good investment and are sitting at 80% LTV with a tenant in place, the problem is that the interest is killing your cash flow. Get balance transfer offers, get a temporary second job, drive pizza or Uber in the evening, borrow a bit of money from a friend or relative, etc. and beat the interest and you will be good. The Detroit market is so depressed right now that I wouldn't be surprised if you were able to quadruple your money over the next 10-20 years when the market recovers. 

@Delmas Edwards ... If you truly believe your tenant won't destroy the house then there's hope. I recommend you sit down with some banks and attempt to get a debt re-consolidation loan and transfer your balances onto it. I'm assuming your credit score dumped to **** because of your utilization rates, so opening a new card with 0% isn't an option. Re-consolidation loans are easy to get for your situation but you will need proof of income (I'm assuming that's no issue since your limits appear to be high). 

Now that you've bought yourself some time with lower interest rates, decide if your numbers play out correctly. If not, sell and take the loss.

It doesn't seem as bad as it sounds. On debt of 28k at 16%, that's $373/month (but not all his debt is at 16%). OP is getting $775/month and assuming expenses at 50%, he's almost cash flow neutral to positive since these are conservative rough numbers.

Here's another idea that I haven't seen others post yet. Why don't you move in to the house yourself, then try to get a loan as owner occupied? Rates would be lower if you are successful on this front.

Personally, if I was of humble means and the credit cards company gave me 28K where I'm making 775/month on that money, I would not give up the house. . . I would give up my credit! 

Let's not forget this house is paid off!

@Account Closed

If I was of humble means, yes I would. But I am not so no. And that's the truth. That said, I would not think less of one who does or has to. Not saying that you do. But there are others who are born with different advantages and disadvantages in life, and you just gotta work what you got regardless where you live.

Also, moving in for a short time to get a better rate on a loan instead of paying 16% to 3 credit cards IMHO is a good idea.

Originally posted by @Delmas Edwards :

I used the 3 credit cards to fund this deal which the first card is APR 16.15%, Interest paid TTD: $990.33, second card Apr 10.49% Intrest paid YTD: $57.70 and a checking line of credit at 14.90%. So I'm paying $200-300 in interest fees on each cc monthly. And I tried doing a cash out refi but most lenders don't like Detroit's market and they don't loan under 50K of the appraised value. Not to mention my credit has taken a hit due because I used my personal cc to fund this project. I just wanted to not sit on the bench and not take action but I'm learning a lot.

Delmas, respect brother.  And here is why.

You took action, and now nobody can tell you that you are sitting on the sidelines.  But more than that, it takes some courage to share things like this.  Just like you, I did a my first deal (a flip in Houston), lost some money, and it wasn't a deal I should have even done, but I did it.  Now we learn and move on.  Sucks to put that out there for everybody to judge, so I appreciate you doing that.

Ignore the negativity in this thread.  Focus on the useful information.

So you have already figured out your cost of funds.  Use the BP calculator to run the rest of the equation, so we can deal in facts here.  What are your taxes & insurance?  Are you using a property manager?  Are you allowing for upkeep and maintenance?  Trying to determine if you are actually making any cash flow here -- I would think you would have to be, but how much?

Find your local REIA meet ups and go get to know some hard money lenders there. That isn't really what you need, but if you are cash-flowing, it might allow you to get into some kind of transition loan. And those HM guys will know what you are trying to do. You might also run into some private money guys there, also. Somebody will have a work-around solution.

It doesn't sound bad -- you are into this thing for $28K and the house has appraised for $35K.  I mean, let's say you find a buyer for it at $35K, you pay roughly 10% in closing costs, realtor fees, etc... you still put a couple grand in your pocket.  That's a lot of work to make a couple grand, but it beats losing money (believe me).

All good questions here -- what is the neighborhood like?  Do you think it is on the rise, or just a warzone?  Working class neighborhood next to a plant or factory, maybe?  Might be worth hanging onto it for a while, long enough to do a refi, especially if there is some chance for appreciation.


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