Help!! When do I refinance my building ?

2 Replies

Hey folks,

Want to get you opinion. I bought an 8 unit building last year. Besides having to renovate and get all new tenants, I did a bunch of work with a new heating system (all new individual units) so the tenants now pay their own heating bills. I got the building for $150k...it appraised last year at $230k..I owe about $100k.

I had to put the furnace project on my credit cards--a lot of money. Fortunately, I have 0% interest on my credit cards til June 2015.

I showed a big loss on my taxes because of all the work I did in 2013. The building is now filled and for the past few months I have been at full cash flow with minimal expenses!!!

Now for my question. I really want to get the furnace cost off my credit cards. When would I be able to refinance? I don't know how banks think or what they are looking for. Do I go back to the same back or choose a different one? What do I need to show the bank so the big loss from last year doesn't make them turn me down? I would like to be able to do this without killing my credit.

Honest opinions please.

Thanks,

Alexis

Originally posted by @Henry M.:

Alexis,

I may not be the best one to answer this but considering you have posted more than once, I would hate for you to think no one is interested in answering your questions. 

Before I attempt to give you my mediocre advice... Let me ask a few questions. 

Are you working full time elsewhere? If so, for how long?

This is important as any bank will only count so much of the rental income affecting your debt to income ratio.

Also, are all these tenants in long term leases (i.e. year)? This is also important. 

Do you have any other assets to offset the debt in general? 

Are you truly only wanting to refinance due to the furnace on your credit cards or are you trying refinance the terms on your note or are you trying to pull additional cash out?

If it's just the furnace, how much is the amount? Why is it so important to pay that off immediately? Is it because the 0% interest is on a limited time frame with an expiration date slowly arriving? There are also other credit cards which will allow you to transfer amounts at a 0% interest to earn your business. As with most credit cards, they're banking on you be late on one payment before increasing to some outrageous interest rate.

The interstate rate is only relevant if you pay the minimum monthly amount due... Otherwise, you can double, triple, etc. until it is paid in full.

As fir your property, usually, you can refinance after a year or two seasoning. It depends on each lender's criteria. If you do have an excellent history with your bank, I definitely would try there first. But keep in mind, regardless when you refinance, you will lose money in the process which most will be tacked onto the loan. So it has to make sense and be for the right reasons (i.e. lower interest rate, avoid balloon payment, etc).

A letter of explanation may suffice regarding your loss but again it depends on who the lender is and the underwriter working your loan.

Bottom line like any lender, they want to make sure you are good for the loan and in the event you default (which we know is a liability they do not want to incur as it's all about performing notes), the collateral is worth backing the loan. 

Not sure how this will kill your credit score unless you have placed yourself in a pinch and forsee missing future payments. 

If that's not the issue, then you should be good. Just like anything else do your due diligence on multiple lenders and retrieve what they have to offer before running your credit.

I'm not sure if I even scratched the surface but I hope this helps a little.

Just my two pesos. 

Big Henry

 

Hi,

First, I do not own any rentals. 

Why would you want to replace zero percent interest with anything higher?  Immediately after refinancing, you'll be paying interest on the entire amount loaned.  I'm no CPA, but the payments should still be deductible as a business expense, even if you are paying zero interest. 

So, I'd pay the maximum you can against the debt as it is with zero interest.  Then, about April or May of 2015, I'd look to pay off the remaining balance by getting a loan. 

This minimizes interest expense and maximizes the pay down with 100% of the payments through May 2015 reducing principle.  This also minimizes the interest that you pay over all on the debt.

Also, this gives you another full year of seasoning on the property.  That should help when the time to get a loan to cover the remaining balance on your credit cards.  (If there is any balance left.)

I hope this is helpful.

Bill

805-300-6918

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