Short-term financing needs

13 Replies

I have a small portfolio of 18 rental units in Fall River and New Bedford (Massachusetts) which I purchased a little over 1 year ago. These buildings were in somewhat of a distressed state including several vacant units needing work and many non-paying tenants. The return on these properties once stabilized are really good, but getting there has been a challenge. At this point I am very close to what I think is a stable point, having evicted 7 tenants and turning over 12 of 18 units. New tenants that I’ve placed through my property manager have been much better.

Here is my question though...I am now running somewhat tight on working capital after a year of putting in all this work, and I still have another 3 evictions in progress that will require another $10-15k in investment to turnover. Is anyone familiar with any type of line of credit product that I could leverage to help get through this final phase of stabilization? Or are my best options going to be a personal loan and/or credit card advances or something like that?

Ya an old housing stock plus a difficult tenant mix can cause a situation like this to arise. I’ve actually looked to do something similar a while back. I went to the local credit union that holds the mortgage and they were willing to do a commercial 5 year short term loan around 6 percent. I would suggest a cash out re fi but it sounds like there’s not much equity since you’ve only had it for over a year. I think if you are in a seriousness crisis partnering with someone with deep pockets in exchange for equity might be the best option. 

@Ryan Morrissey I'd recommend talking with Rockland Trust or any of the other local banks like Bridgewater Savings, Eastern Bank, etc.

Talk to their commercial loan departments, describe what you need and see what they offer.  Ask about community reinvestment funds.  There are programs that require some of these banks to invest in their local communities.  That could be a good fit.

@Mike Buckley Thanks Mike. I am definitely going to talk with my credit union who I have the primary mortgage loans with about doing a cashout refi, but I have the same concerns about the equity available due to just 1 year of seasoning. Although since I don’t need much funding, that might be a viable option. Only downside is that I’ve got a great interest rate on the loans right now and would obviously lose that to squeeze out just a little cash for a short-term need. Not a great strategy from a long-term perspective.

@Ryan Morrissey Rates are still very low right now but the closing costs may be too much to make it worth while. I'm not sure what credit union you use but St Anne's and Bank 5 seem to do a lot of business on the south coast... The area is great for ROI when done right. Hanging in there through the knob and tube, lead paint, and failing cast iron plumbing (etc.) is the hardest part!

The closing costs (appraisal in particular could be $3k+) might make it not worth it, but we’ve refi’d as soon as 6 months after purchase and it sounds like you’ve done a ton of work. Bet there is more equity there than you think. 

I’d start with current mortgage holder, see if they’ll do a 2nd lien or unsecured line/loan.  

@Will Stewart and others, a friend of mine who owns a sizable portfolio out in Gardner/Leominster area said he’s worked Hanscom Federal Credit Union to do an SBA 7a Express Loan which is basically a 2-year revolving line that converts to a 5-year fixed after 2 years. Interest-only payments are made during the 2 year draw period. I’m going to explore that as well with my current credit union.

@Ryan Morrissey I am a local investor in Fall River assuming the financing options above work out you are probably going to be fine.

If you are considering a partner or looking to sell the portfolio I might be interested in partnering up or purchasing the portfolio if that’s an option.

Either way, we can do lunch and I might be able to connect you with some of my local connections.

Cheers to your success!

@Will Stewart need to correct my previous post. Apparently the SBA 7a express loan is not the loan product my colleague ended up using with HFCU. I confirmed it was a revolving line of credit with a 2 year revolving period and then a conversion to a five-year fixed that he did with HFCU, but it was not SBA backed. The SBA 7a express loan is very similar, but learned today that rental properties are an excluded business and do not qualify for that program.

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