I need help in what I should do, what are my options?
Warren, MI · Member since 2015 · 140 posts · 36 votes
I need help in what I should do, what are my options?
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Investor · Houston, TX · Member since 2017 · 1k+ posts · 871 votes
8yOriginally 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.
75 Replies
- Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes8y
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.
The DIY Landlord Book4.7247 Reviews - Investor · Los Angeles, CA · Member since 2017 · 523 posts · 476 votes8y
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).
- Real Estate Investor · Encinitas, CA · Member since 2016 · 3k+ posts · 3k+ votes8yDelmas 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.
- Investor · Los Angeles, CA · Member since 2017 · 523 posts · 476 votes8y
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.
- Warren, MI · Member since 2015 · 140 posts · 36 votes8y
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.
- Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes8yI 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
- Warren, MI · Member since 2015 · 140 posts · 36 votes8y
@Account Closed 10.5K rehab cost.
- Investor · The Creek, WV · Member since 2014 · 890 posts · 1k+ votes8y
@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.
- Rock Hill, SC · Member since 2015 · 104 posts · 209 votes8yYou 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.
- Specialist · Ann Arbor, MI · Member since 2017 · 74 posts · 22 votes8y
If you are paying 16%apr(!) I would say cut and run.
@Delmas EdwardsWhere is the property located? What cross streets?
Is this your first deal?
- Investor · Henderson, NV · Member since 2017 · 37 posts · 39 votes8y
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.
- Investor · Henderson, NV · Member since 2017 · 37 posts · 39 votes8y
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.
- Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 16k+ votes8y
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.
Skyline Properties - Member since 2018 · 294 posts · 97 votes8y
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.
- Investor · Klamath Falls, OR · Member since 2017 · 28 posts · 9 votes8y
@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.
- Investor · Henderson, NV · Member since 2017 · 37 posts · 39 votes8y
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!
- Investor · Henderson, NV · Member since 2017 · 37 posts · 39 votes8y
@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.
- Investor · Houston, TX · Member since 2017 · 1k+ posts · 871 votes8y
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.
- 8yShiloh LundahlPro MemberRental Property Investor · Gilbert, AZ · Member since 2016 · 3k+ posts · 4k+ votes
@Delmas Edwards Don’t panic. You are in a situation that can help you grow if you will let it. The people on this thread that have been negative towards your decision I am guessing are one man show types of people who count too much on themselves rather on collaboration. I can see it in their words.
You really are not in that bad of a position. There are many things you can do that have already been mentioned here:
1. Get a hard money loan and pay off the majority of the credit cards. Hard money loans are not counted against your credit so your score is likely to increase after a couple of months. Then apply for another zero percentage credit card with balance transfer checks pay off the hard lender. Or you can find a hard money lender with decent rates and low points that will carry the loan for a year or two. His rates should be better than the credit card rates.
2. Get a private money loan and secure it with a deed of trust on the property. This loan could be from a family member or friend or you could create a 1st position note performing at 10% and advertise it here on BP. A lot of people want 1st position, low cost notes, but you would want to make sure you have a decent tenant living there paying rent on time.
3. Reach out to other investors here on BP that invest in your area and ask for referrals for banks that work well with investors. Call those banks and build a relationship with them. Find out what you need to do to be able to get a loan through them.
People have said that low cost properties are more risky, but that is more for out of state investors. If you are in state and can watch over your property more closely and manage it yourself, I think that it is not as risky; as long as you have screened your tenant properly. I would encourage you to look for a mentor your area and see what you could do to add value to him somehow learn more about investing your market successfully. Network, network, network.
So I wouldn’t panic. You have options. And congratulations for taking actions to get in the game.
- 8yShiloh LundahlPro MemberRental Property Investor · Gilbert, AZ · Member since 2016 · 3k+ posts · 4k+ votes
@Account Closed.
Right now, it isn't about paying off the principal, it is about repositioning his debt into a lower interest rate. By using a hard money lender, that loan would not count against his credit and his score would improve helping him be in a better position to get a loan on the property. Or he could use the balance transfer checks to get a lower interest rate of zero percent for a time period where he can work towards paying down the principle.
Getting a second job is not a bad idea either, but it the lone ranger way of investing. I say he takes this opportunity to learn how to be more creative and collaborate with others rather than just work harder himself as the solution.
By the way, "Jessica," are you the same guy who keeps creating bogus profiles and commenting on everyones posts until they shut you down? You apparently, registered yesterday and already have 50 posts. That is very unusual for a brand new member on BP and there is no information about you on your profile (just like the guy who has be creating bogus profiles for the last 6 months or so). Most people who are new to this website don't post over 50 times in a day without any introduction such as "I'm new here" etc. You just jumped into the forums and started commenting like you've done it before. Also, your writing style and opinions are pretty similar, albeit, less obnoxious, vulgar, and infused with slang (so at least your improving).
If you are not that same guy, then I apologize for the tone of this reply. Why don't you let us know a little more about you on your profile so it feels like we are conversing with the actual person you claim to be.
- Contractor · Pensacola, FL · Member since 2017 · 317 posts · 156 votes8y
If it were me, I would get a personal loan from my bank to pay off the higher interest debt.
- Warren, MI · Member since 2015 · 140 posts · 36 votes8y
This my first property. C+ working neighboorhood. I believe Detroit going to make it's way back in due time. I manage this property myself. My tenant has taken care of my rental and been paying on time. We have had a plumbing issue due to tree roots but my cousin is a plumber and I use him to maintain it and also use root x. I fill I want to keep this property and find other options to be able to continue to hold so I can learn from this process and have more of these in the future to be able to give affordable housing to tenants. Thanks for all you guys comments I really appreciate the feedback.
- Rental Property Investor · St. Petersburg, FL · Member since 2017 · 3k+ posts · 4k+ votes8yA lot of panic on this thread. That's no way to run a business. Right now, with the CC payments, you're about break even, maybe a little positive on cashflow so there's no reason to liquidate, there's time to come up with a plan. You're going to have trouble getting a bank or hard money loan with such a low property value but, you have a few options. First, you can take out a personal loan to lower your interest rates. Another option to consider is seller financing. You own the property outright, why not take a down payment, say $5000, and hold the note for the rest. A third option could be a loan from family/friends. Pay them 8-10% and increase your cashflow while building your empire. Bottom line is dont panic, you have options....
- Investor · Los Angeles, CA · Member since 2017 · 523 posts · 476 votes8y
Delmas, I see the property. From the outside, looks pretty decent for sure, and I see you have ADT, which is good, and it sounds like the tenant has been pretty decent. I think it's always good to hear two sides to a story, as you did on this thread, but I have to say, you can hang on to this thing, and use it to grow.
Focus right now is getting those credit cards you used to buy it, paid off. I'd concentrate on putting every dollar of rental income you bring in, not to mention a decent portion of your outside savings, to pay this down. Take on some outside work if you have to - if anything, it'll make you more invested in and excited about real estate, when you realize the potential upside of this business.
If needed, take a loan from friends or family, but be aware that comes with it's own risks, I've found you want expectations laid out clearly. If it were me, I'd try to just use the rental income and some extra savings to pay it down. Some sort of bridge loan, even if hard money, isn't bad in this case. Just make sure you really understand the terms - I'd run it by a lawyer or CPA or even just folks here on Bigger Pockets, before you sign anything.
Long term, assuming you can find decent tenants who pay the rent on time, respect the place, and stay there for a while (and it sounds like you can), this could be good for you. After it's paid off, and you are cash flowing with a decent return, that money can be used to buy another rehab property in your area, and repeat the strategy. At some point, you can probably use the fact you have several properties, to become a bit more creative with financing, maybe do a cash out refinance on the portfolio, and use that to buy more or buy bigger. This is just the start my friend. Use this as an opportunity to learn and grow!
- Rental Property Investor · Durham, NC · Member since 2014 · 1k+ posts · 1k+ votes8y
A lot depends on your personal financial situation. Worst case scenario, for whatever reason the property is vacant for five months. Can you afford to pay your bills and the three loans used to buy/rehab the investment property?
If the answer is "yes", I would definitely keep the house. If the answer is "maybe for two or three months", I would still keep the house, but I'd be worried. If the answer is "no, not even for one month", then I would start looking for other options ... but I'd probably still keep the house. A bird in the hand and all that.
One option no one else has mentioned ... Are you in a position to move into the property yourself? If you experience a long vacancy, maybe you could move into it and pay down the debt that way. At some point, one year or two, you'll have enough of the debt paid down for it to not be so onerous.
Bottom line, you hustled and got an investment property when there probably didn't seem like you had much of a chance to do so. Further, you got it rehabbed and leased at a decent price. Not knowing other factors (any deferred maintenance remaining, etc) I would have to say this is a success. You just have to be careful and not spend money elsewhere until you get this debt under control. Once you reduce/eliminate this debt, this property could be a great aid in getting you to the next step. Congrats.
Good luck!
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