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
- Rental Property Investor · Durham, NC · Member since 2014 · 1k+ posts · 1k+ votes8y
Originally posted by @Account Closed:
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!
Nothing to add. I just wanted to copy and paste that!
- Investor · Akron, OH · Member since 2016 · 2k+ posts · 4k+ votes8y
call your all your credit card companies and see if you qualify for a 24 or 18 month same as cash balance roll over, then pay the balance transfer fee and roll it over to buy time to seek traditional financing. If your DTI won't support conventional financing, see if you can get commercial financing since you already did the rehab and got a tenant. Who did the appraisal? was it ordered by a bank?
- Warren, MI · Member since 2015 · 140 posts · 36 votes8y
@Jill F. A realtor did the appraisal because I had it listed for sale before but I wasn't getting the offer I wanted so I started to seek other options. That's why I came on here and discussed it with you guys. Tomorrow morning since the cc is used with Navy Federal I'm going to see if they can offer me a HELOC since the rental property is purchased in my name and it has no mortgage,100% equity.
- Member since 2018 · 294 posts · 97 votes8y
Originally posted by @Delmas Edwards:
@Jill F. A realtor did the appraisal because I had it listed for sale before but I wasn't getting the offer I wanted so I started to seek other options. That's why I came on here and discussed it with you guys. Tomorrow morning since the cc is used with Navy Federal I'm going to see if they can offer me a HELOC since the rental property is purchased in my name and it has no mortgage,100% equity.
That's a nice little house for Detroit. You are doing good. Like everyone said, find a loan consolidation, balance transfer or hard money loan (if the HELOC doesn't work out) to buy some time away from the interest and you'll be good. And then if you have a vacancy consider moving into it for a year if you still need financing. You only need to live in it for one year and then you can change it back to a rental with conventional financing on it. Ignore the negativity from all the Hawaiians here, that's not the real world. You live in the real world and just need to deal with the interest you're paying. There are tons of companies buying up Detroit because they know it will eventually recover and blow up. Hold hold hold. And congrats.
- Lender · Virginia Beach, VA · Member since 2018 · 49 posts · 38 votes8yOne option if you truly want to keep the property and are willing to GRIND this out to make it worth while in the long run. Start by calling each credit card company and ask them to lower the APR. If they say no, then you move on. 50% of the time they will actually lower the rate for you just because you called. Next go online and an search for a credit card that offers 0% interest for 18-21 months. It will cost you a 3% transfer fee but will save you tons on interest charges, like your current situation. If you can get all that done you will need to start paying down the 18K balance ASAP!!! Get more income, stop going out to eat, get a Roomate and do whatever you have to do to GRIND down these balances on your credit cards. When the 0% interest rates ends and you still have a balance due, repeat the search for another 0% interest rate and transfer the remaining balance again. Stay focused on paying down the balance religiously and learn from this, write it out because you will have more deals and you don’t want to make the same mistakes. Good luck man! Buy and hold!! Like a real life game of Monopoly!!!
- Cleveland, OH · Member since 2018 · 133 posts · 59 votes8y
@Delmas Edwards Well you're definitely aggressive that's for sure. I would say flip the property and break even and then work on wholesaling to build up cash, that way you don't have to max out your credit cards. This gives you back your lines of credit for other use (emergency use) and now you don't have ridiculous interest rates. If anything use your credit to get lender financing, home depot or Lowe's account and build that way. 16% interest rate is too high to make decent cash flow.
- Investor · Klamath Falls, OR · Member since 2017 · 28 posts · 9 votes8y
It's apparent you aren't giving up the house. So, hopefully your HELOC gets approved but I'm honestly unsure if it will without any specialized lender (assuming your credit score is very low right now due to utilization) and if your DTI meets requirements.
My personal option would be in your situation:
1. If HELOC isn't approved due to credit/DTI -- Pay for/find a co-signer willing.
2. Apply for consolidation loan.
3. SAVE MASSIVELY: Also, you could move out of your current home if you're renting and live in your vehicle... I did this for many months, it was very effective.
- Warren, MI · Member since 2015 · 140 posts · 36 votes8y
@Account Closed I don't think, I know! A lot of ppl still love, live and work in Detroit. 2nd reason is a lot of big investors are pouring money in all over especially Downtown Detroit. Just about every state and city has its ups and down just like the stock market but people still invest. And lastly, the definition of insanity is your silly opinions. Lol
- Flipper/Rehabber · East Brunswick, NJ · Member since 2018 · 64 posts · 152 votes8yDon’t hustle off the house. Hustle down those cards. You would be like a dog chasing its own tail to use cards to get house then say, oh damn I have to lose the house to get my cards back.
- Member since 2018 · 294 posts · 97 votes8y
Originally posted by @Account Closed:
Give Dave Ramsey a call.
People here do way too much stroking. And don't deal with the issues.
You have 100% Credit card financing. That is insane.
So much so one guy is saying live in a car.
Nobody is stroking here, I'd much rather see somebody grind out a tough win for their family than say screw it I can't afford the credit card interest and sit on the sidelines. You're being ridiculous and judgmental. Not only about investing on credit cards, but about somebody investing..... clutch your pearls....... in a cheap house in Detroit.
Most people would put a 70" plasma and some Tigers tickets on their credit cards and this dude is buying a rental property and asking for advice to further his family's situation. Did he hit a home run? No, but he got in the game and that's why everyone is giving him props. So, you know - no offense or anything - but I would suggest getting off your high horse and heading back to paradise where your judgments might mean something, bro. Everyone here can see this man has major walnuts and just needs to up his game a little to make it work.
- Investor · Charlotte, NC · Member since 2015 · 183 posts · 146 votes8y
@Delmas Edwards You got a house, got it rehabbed, and you did it with credit cards all-in for $28,500. Congratulations, you made something happen. You live in the Detroit area (Warren) and the house is in Detroit (btw it looks nice), and you believe in the area - that means a lot. Yes, the credit card interest is high, but now you just need to tackle it with everything you've got, i.e. rent income, part-time income, etc. Look at it this way, if you paid $50k cash for the house and rented for $775 per month, using 50% rule for expenses, your NOI would be $4,650. That's about a 9% cash on cash return. But you didn't pay cash, so what? Don't run at the first sign of difficulty. Throw everything you can at the credit card debt, to include seeking a refinance and/or 0% balance transfers to another card, and in 3 to 4 years your total interest expense should be less than $15,000. Keep good records to prove the credit card interest is directly tied to the property and it will qualify as a deduction. Jessica mentioned call Dave Ramsey, he'll just tell you to eat beans and rice, and save-up to pay cash for rental property. You're in it now, this is your baby for the next few years, just stay close to it. I think you're going to succeed. Hang in there. Good luck!
- Rental Property Investor · Houston, TX · Member since 2018 · 106 posts · 56 votes8y
First of all, it is a great thing that you took the first step. No matter what others are saying. First home is the hardest and you will have a lot of seminars around that. First thing you need to do is consolidate all the debt with lower interest.
There are a couple of suggestions that come on top of my head for you.
1. Go to chase branch, apply for slate card in person. Even though your credit got a hit, it is always good to try. They have 0% APR for 2 years with no balance transfer fee. Or find a card co signer.
2. Try applying loan with sofi or any online personal line of credit. I am aware that you took a hit in your credit score. There are ways to consolidate all the loans even your credit score is pretty bad.
3. Find a hard money lender (local) that knows the area and willing to lend you bridge money. Maybe through bigger pocket or any referrals.
In my opinion, it is not the end of the world. I salute you for taking actions and real estate has a lot of seminars that you would see.
I would do the above things as quickly as possible since you are paying too much interest and you never know when the market is going to turn or the current tenant will lose the job and move out.
- Specialist · Ann Arbor, MI · Member since 2016 · 355 posts · 191 votes8yCheck out this article in Bridge magazine about the historical problems with lending in Detroit and the lenders who are trying to do something about it. I would call Quicken to see if they can help you or some of the other organizations mentioned in this article. You might also try Chase, I know that they have invested a significant amount of money in Detroit. Other posters mentioned calling every single small bank in the region as well. https://www.bridgemi.com/detroit-journalism-cooperative/banks-are-lending-again-detroitif-you-live-right-neighborhood
- Investor · Akron, OH · Member since 2016 · 2k+ posts · 4k+ votes8y
Originally posted by @Delmas Edwards:
@Jill F. A realtor did the appraisal because I had it listed for sale before but I wasn't getting the offer I wanted so I started to seek other options. That's why I came on here and discussed it with you guys. Tomorrow morning since the cc is used with Navy Federal I'm going to see if they can offer me a HELOC since the rental property is purchased in my name and it has no mortgage,100% equity.
Oh that will be great if you can get a HELOC to get down interest in the short term and no closing costs. A HELOC will impact your credit, so you might want to refi into a conventional loan at some point. That house is adorable; I bet you make money of that as a rental.
- Specialist · Ann Arbor, MI · Member since 2016 · 355 posts · 191 votes8yHere is another great article with a lot of information and links to places that might help. A lot of interesting history as well. https://www.detroitjournalism.org/2017/03/31/detroit-rarity-home-mortgage/
- Tulsa, OK · Member since 2016 · 119 posts · 23 votes8yHello Sir! Honestly, I keep the property and use the payments towards the credit cards. Your credit may take a hit, but it can always be repaired.
- Rental Property Investor · Detroit, MI · Member since 2017 · 55 posts · 53 votes8y
@Delmas Edwards don't listen to the negative people. There's plenty of opportunities within Detroit nowadays. You're right near the Pointe's, which is great. Hold on to the house and use as much of the rental income to pay down CC's as fast as possible.
I would look into the Detroit Home Mortgage Program: http://www.detroithomemortgage.org/#faq they will work with you to refinance, and it they're doing it for any area in the neighborhood.
Chemical Bank is a small bank that is doing a great job helping folks get mortgages and private loans for homes in Detroit, as well. I used them on a recent 203k for a duplex in the Bagley neighborhood. It took a while to get through the paperwork, but it was well worth it.
https://caliberhomeloans.com/ also has been helping homeowners in the city with non-perfect credit, I would give them a call.
Just keep asking and reaching out. Eventually you will find a private lender or bank that will be willing to help.
And for all the people that don't think it's smart to invest in Detroit, start reading some more about the city. First the businesses move in, then the people follow shortly behind. There's over $5 billion in developments going on in the city currently.
Good luck and keep us posted!
- Specialist · Cleveland, OH · Member since 2018 · 12 posts · 2 votes8y
Delmas,
Kudos on at least taking a shot at this. Perhaps you had a good gut feeling but went through the wrong leveraging options to purchase. It takes guts to do what you did but in order to succeed, I think you need to speak to someone who can provide you with better financing options in order to get out of paying future credit card interest rates especially if good tenants become bad ones which is so often the case. There are quite a mixture of posts on this thread with a lot of important points to consider. If you do have some credibility for loan applications, you need to try and get a more conventional loan rather than relying on paying off the credit cards on a monthly basis. If your credibility isn't there, you may need a co-signer to help you out but in return offer them a deal to reduce this form of debt.
Either way, congratulations on the purchase and for taking the risk in the first place but you need to get a safer more conventional property loan in my professional opinion to give you better chances in keeping this property especially if you have a long term rental income plan for it. For short-term, this is high risk property to carry based on credit card payments which rely on a guaranteed timely monthly rental income that will pay your credit card debts on time.
Thanks,
Amit
- Rental Property Investor · Edison, NJ · Member since 2016 · 753 posts · 565 votes8yI would sell the property because this will be too costly due to the interest rates of your credit card payments. If you keep this house then I would get a second job or work overtime at your current job if that is an option to pay off these credit cards ASAP. Never again buy a property on credit cards. If you can’t get a mortgage or bank loan in the future then wait to buy until you can qualify. Credit cards are just too expensive for a property that you want to hold.
- Real Estate Agent · MD · Member since 2017 · 39 posts · 37 votes8y
@Delmas Edwards that house is LOVELY from the outside, so much curb appeal! And what a great price too! Navy Federal has many options and they seem to be generous (as I've experienced first hand). Don't forget to let them know you've been receiving rent for this property and will be including it on your taxes. If they can't do a HELOC, look into a personal loan/debt consolidation loan there. If you have any other collateral, you will get a better rate...ie: car/truck that's paid off. Please let us know how it goes. I'm over here cheering for you to win on this one! And I'm sure a lot of other people would love to hear a great outcome on this situation as well. Its not easy to be that brave, you've done it, will learn from it and will come out on top, keep the positive attitude and always be on the lookout for solutions...this is just the beginning of what may well be a very bright investing future. Remember, it gets easier as you go! Best of luck!!!
- Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 16k+ votes8y
Originally posted by @Delmas Edwards:
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.
From the outside you did a really nice job with that house.
The first few properties are always the most difficult. Keep your head in the game. You own a house free and clear that you bought and rehabbed with (virtually) no-recourse loans (unsecured credit). If your tenancy works, all you really need to do here is get the interest rate under control. That's not nearly as hard as it sounds. It just takes some plugging away - either banishing the lowest-balance CCs first or finding some consolidation method (HELOC, mortgage, whatever).
Skyline Properties - Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 16k+ votes8y
Delete duplicate post.
Skyline Properties - Investor · Rochester, NY · Member since 2017 · 206 posts · 175 votes8y
If you're cash flowing, I'd keep it. Try to balance transfer the money to a 0% interest offer. If that doesn't work, you can attempt to open up a personal unsecured line of credit at a credit union. The rate should be around 5%-7% depending, maybe more. Once you get that interest rate down you'll be cash flowing a lot more.
- Member since 2018 · 7 posts · 12 votes8y
Im just curious what the plan was using cc financing? Were you in the intro offer period and hoping to get it flipped during your intro period? Or did rates go up just because of your credit tanking due to so much debt? Don't get me wrong i use helocs to get into properties then secure financing after. Definitely wanna hear what your expected numbers when u started, what they ended up being, and what your rental numbers are. I'm thinking make a good article after you're big n famous. Worst case scenario sounds like a place I'd be interested in adding to my portfolio. Good luck with the financing
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