Rental needs emergency repairs, personal DTI too high for personal loans
Rental Property Investor · Washington, DC · Member since 2022 · 19 posts · 11 votes
Rental needs emergency repairs, personal DTI too high for personal loans
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Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
3yQuote from @Tabitha Bean:
The problems are extensive, the unit needs to be gutted. New drywall, new flooring, new kitchen, bath, windows and doors. The unit is small, less than 700 sq ft.
Hope that helps.
Well an emergency is something unexpected that pops up out of nowhere. A whole unit needing a full gut rehab isnt unexpected, it isnt an emergency.
Penfed does helocs on rental properties. Or Eastern Savings Bank may be able to do a cross colateralization loan. Or do little by little and pay as you go.
District Invest Group545 Reviews
57 Replies
- Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes3y
Hard to make a suggestion on a solution without knowing exactly what the problems you need to fix are.
District Invest Group545 Reviews - Rental Property Investor · Washington, DC · Member since 2022 · 19 posts · 11 votes3y
The problems are extensive, the unit needs to be gutted. New drywall, new flooring, new kitchen, bath, windows and doors. The unit is small, less than 700 sq ft.
Hope that helps.
- Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes3y
Quote from @Tabitha Bean:
The problems are extensive, the unit needs to be gutted. New drywall, new flooring, new kitchen, bath, windows and doors. The unit is small, less than 700 sq ft.
Hope that helps.
Well an emergency is something unexpected that pops up out of nowhere. A whole unit needing a full gut rehab isnt unexpected, it isnt an emergency.
Penfed does helocs on rental properties. Or Eastern Savings Bank may be able to do a cross colateralization loan. Or do little by little and pay as you go.
District Invest Group545 Reviews - Real Estate Investor · Burlington, VT · Member since 2010 · 2k+ posts · 1k+ votes3y
@Tabitha Bean Have you tried applying directly for any 0% business credit cards? There a quite a few out there that don't report to your personal credit. I've recently applied for both the Chase Ink and a US Bank business card, both with almost instant approvals and $10k credit lines each. Both had at least 12 months 0% interest and no annual fee.
Something to think about as long as you can get the work complete and the cards paid off within a year.
Good luck!
- Rental Property Investor · Washington, DC · Member since 2022 · 19 posts · 11 votes3y
@Tom S. I have not applied directly for business credit. I am currently a sole proprietor (ie not a legit business because I am just figuring this all out).
Talking with Fund & Grow made me feel safe like I had someone else at the ship's helm, but their service is NOT free. Unfortunately, this project will top out at over $45k and IS an emergency for us in the sense of cash flow.
I appreciate you sharing your personal experience. I need to get this unit rehabbed and rented asap in order to keep the whole portfolio afloat. I am more than open to hearing about other strategies you would recommend to get the whole project completed without having to dish out $4k for a company to hold my hand.
- 3yJay HurstBusiness MemberLender · Dallas, TX · Member since 2017 · 1k+ posts · 1k+ votes
Quote from @Tabitha Bean:
My novice status will show here...I recently purchased a 4-unit multi-family property in Washington, DC. Though this has seriously boosted my net worth, it has stuffed my cash flow into the trash.
I have a significant amount of equity in this and other properties, but thanks to this property shooting my DTI so high, everywhere I go I get shot down for HELOC's and personal home improvement loans. I did some research on Fund & Grow, but it makes me feel uncomfortable because I have no experience with something that CREATIVE. I have one high credit card balance that I am able to pay down now, but I can't even apply for Fund & Grow's services for 3 months after the balance is paid down.
My contractor and crew are waiting for the word today though. This is a real growing pain for me as I am leveling up as an investor. I am feeling discouraged because I am hoping to continue to grow my portfolio, excited to purchase more single-family homes without any doubts about my ability to manage my portfolio with great success. But not if I am stuck without any access to financing. I think this is a knowledge issue and that many of you out there know ways to turn this situation into a fairly simple solution.
Grateful for any advice!
@Tabitha Bean The time to have addressed this would have been when you purchased the property. At that point, it would have been easier to have gotten the repairs worked into the financing.
Hurst Real Estate, INC4.991 Reviews - Rental Property Investor · Washington, DC · Member since 2022 · 19 posts · 11 votes3y
@Jay Hurst yes. If I had had any wiggle room at that time, that is exactly what I would have done.
- 3yJenny D.Pro MemberRental Property Investor · Austin, TX · Member since 2014 · 40 posts · 11 votes
Curious. Where in DC is your property located?
- 3yTheresa HarrisPro MemberMember since 2019 · 15k+ posts · 11k+ votes
See if you can find a 0% interest credit card and do not purchase anything else until you get your finances sorted. Home Depot has 6 months no interest credit cards that should help you with some material.
- Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 16k+ votes3y
Quote from @Tabitha Bean:
The problems are extensive, the unit needs to be gutted. New drywall, new flooring, new kitchen, bath, windows and doors. The unit is small, less than 700 sq ft.
Hope that helps.
Are you saying the entire fourplex is 700sf or just one of the four? If that's the case, are the other 3 rented?
As Russell mentioned, a rehab isn't an emergency so it sounds like you needed to plan for these costs when you purchased. If your DTI is too high to get any financing anywhere, then you are going to be limited to one of three options to pay for repairs:
1. Make more money - more hours at work, second job, reduce personal expenses.
2. Private loan - friends, family. Perhaps work out a no-interest carry period with a balloon at the end.
3. Business/consumer CC float - cash advance for labor or materials, box store card like Lowe's/HD
It doesn't sound like it's possible to just band-aid the unit and rent it for less until you get your DTI under control, so you'll probably have to turn to one of those options.
Skyline Properties - Investor · Clairemont, CA · Member since 2011 · 3k+ posts · 2k+ votes3y
I think you need to back up to the beginning and share the short version of the property's story. Where is it, how much did you buy for, what are current rents, what are stabilized rents, what does it take to get to those rents, what rehab must be done, what are you trying to do...
A unit rehab is not an emergency. Needing to do it for cash flow isn't an emergency. Feeling pressure that it will solve your DTI/CF issue isn't an emergency. Those are all planning issues, and the above answers will help you formulate a plan. I think your situation may be better than you think, but you're focused on one issue and one supposed solution.
- Real Estate Agent · Washington DC · Member since 2016 · 847 posts · 656 votes3yIt’s hard to give full advice without knowing your entire situation/portfolio, I will say genarically assuming you have substantial equity in multiple properties and no cash flow and a property that needs to be rehabbed you really need to think portfolio wide, what are your actual goals? Do you need the cash flow now? What is the upside of this property, if it’s in dc what is it value today because I bet it’s a lot less than a few years ago if it’s a 4 unit in a gentrifying part of the city. Is there a property in the portfolio to sell to make repairs on this? Should this be sold? The one big mistake a lot of people make and I’m not necessarily saying your doing this, but is compounding mistakes, throwing good money after bad and in the process putting the entire portfolio in jeopardy, so instead of focusing entirely on getting this money I’d take a portfolio (any other assets you have included) and life outlook and figure a path foward based on not only on cash flow but minimizing risk.
Quote from @Tabitha Bean:
My novice status will show here...I recently purchased a 4-unit multi-family property in Washington, DC. Though this has seriously boosted my net worth, it has stuffed my cash flow into the trash.
I have a significant amount of equity in this and other properties, but thanks to this property shooting my DTI so high, everywhere I go I get shot down for HELOC's and personal home improvement loans. I did some research on Fund & Grow, but it makes me feel uncomfortable because I have no experience with something that CREATIVE. I have one high credit card balance that I am able to pay down now, but I can't even apply for Fund & Grow's services for 3 months after the balance is paid down.
My contractor and crew are waiting for the word today though. This is a real growing pain for me as I am leveling up as an investor. I am feeling discouraged because I am hoping to continue to grow my portfolio, excited to purchase more single-family homes without any doubts about my ability to manage my portfolio with great success. But not if I am stuck without any access to financing. I think this is a knowledge issue and that many of you out there know ways to turn this situation into a fairly simple solution.
Grateful for any advice!
- 3yTim DelaneyPro MemberBuffalo, NY · Member since 2018 · 790 posts · 530 votes
@Tabitha Bean as others have said it is tough to provide solutions without knowing the bigger picture, but based on your comments it seems that you own other properties and I would like to hope that those are cash flowing if you are buying new multi-family properties. What about the other three units in this property, are they all rented out already - can you wait a few months and let some of that cash build up? Or maybe one or more of those has enough equity that you can convince a hard money lender or preferably friend/family member to collateralize with those and lend you the cash for the rehab?
The issue I think you may have with that is that you will need to show them that you have a plan. So, be sure to create a concrete plan with your contractors so you can show a lender exactly what will be done. Then also show how the cash flow will be able to pay back the loan. This part I would question if you are already having cash flow issues from only one unit not being rented out of the multiple units you own.
- Member since 2022 · 186 posts · 192 votes3y
Sounds like you in a tough spot. You shouldve would’ve could’ve a million things. But you didn’t and that’s ok. Don’t beat yourself over it. Have you considered taking a loan on your retirement account assuming you have one? That has been a source to help me get started in investing. I took a loan on my 401k. Yes you might lose some gains, however it’s a source of non credit income.
- Real Estate Agent · Denver CO · Member since 2019 · 210 posts · 332 votes3y
Don’t beat yourself up. You’ll get through this but the only way out is through.
1) As others have mentioned I think the 0% business credit cards are your best option. Should still qualify as a sole prop. Or just get a regular 0% credit card in your personal name. I’ve over extended myself before and had to use these options while delayed projects completed.
2) 401K loan once the credit cards start to mature.
3) side job or gigs on your day off. That should get you another $12K after 12 months.
- Member since 2022 · 3 posts · 7 votes3y
Depending on the property, I have a contractor who will take on the renovation costs and then do a split on sales profit after expenses. She is an expert with DC permitting and does a lot of condo conversions. Probably not your ideal scenario as it seems you're focused on acquiring and holding, but if it provides you a decent profit and circumnavigates your financing issues, that cash could go toward another turn key property.
- Investor · Rochester, NY · Member since 2016 · 576 posts · 358 votes3y
Try a DSCR loan. Debt to income won't matter.
- Member since 2019 · 7k+ posts · 4k+ votes3y
Quote from @Tabitha Bean:
My novice status will show here...I recently purchased a 4-unit multi-family property in Washington, DC. Though this has seriously boosted my net worth, it has stuffed my cash flow into the trash.
I have a significant amount of equity in this and other properties, but thanks to this property shooting my DTI so high, everywhere I go I get shot down for HELOC's and personal home improvement loans. I did some research on Fund & Grow, but it makes me feel uncomfortable because I have no experience with something that CREATIVE. I have one high credit card balance that I am able to pay down now, but I can't even apply for Fund & Grow's services for 3 months after the balance is paid down.
My contractor and crew are waiting for the word today though. This is a real growing pain for me as I am leveling up as an investor. I am feeling discouraged because I am hoping to continue to grow my portfolio, excited to purchase more single-family homes without any doubts about my ability to manage my portfolio with great success. But not if I am stuck without any access to financing. I think this is a knowledge issue and that many of you out there know ways to turn this situation into a fairly simple solution.
Grateful for any advice!
Few more input :
1. Get the personal/rehab loan from Credit union not the bank ! they have much less DTI requirement. Even one CU is different than other CU. I think max is around 30-50k. Key here is to find CU that's "easy" on underwriting.
2. Talk to your contractor to have financing payment model, so you pay 30-40% until project is finished; then you pay them fixed fee per-month. This would delay some bills. Some contractors are okay with this as their breakeven model is made on the first 50%
3. And of course our 401k/PLOC loan friend is also there too to be tapped.
But in this market, you need to have your timing correct, especially if you are on winter time zone. - Rental Property Investor · Washington, DC · Member since 2022 · 19 posts · 11 votes3y
@Carlos Ptriawan Awesome advice there, thank you!
My contractor is very reasonable, but hard to get him started, so I even the idea of sending him away means it will take a very long time to get him to come back around.
We have checked with CU, but apparently not easy enough on the underwriting. And amen on the timing!
- Rental Property Investor · Washington, DC · Member since 2022 · 19 posts · 11 votes3y
Quote from @Jenny D.:
Curious. Where in DC is your property located?
SE DC where rents aren't yet where we hope they will be in 5 years.
- Rental Property Investor · Washington, DC · Member since 2022 · 19 posts · 11 votes3y
Quote from @Carini Rochester:
Try a DSCR loan. Debt to income won't matter.
Yeah, another factor is that the property doesn't have a DSCR high enough for me to qualify there either.
- Rental Property Investor · Washington, DC · Member since 2022 · 19 posts · 11 votes3y
Quote from @JD Martin:
Quote from @Tabitha Bean:
The problems are extensive, the unit needs to be gutted. New drywall, new flooring, new kitchen, bath, windows and doors. The unit is small, less than 700 sq ft.
Hope that helps.
Are you saying the entire fourplex is 700sf or just one of the four? If that's the case, are the other 3 rented?
As Russell mentioned, a rehab isn't an emergency so it sounds like you needed to plan for these costs when you purchased. If your DTI is too high to get any financing anywhere, then you are going to be limited to one of three options to pay for repairs:
1. Make more money - more hours at work, second job, reduce personal expenses.
2. Private loan - friends, family. Perhaps work out a no-interest carry period with a balloon at the end.
3. Business/consumer CC float - cash advance for labor or materials, box store card like Lowe's/HD
It doesn't sound like it's possible to just band-aid the unit and rent it for less until you get your DTI under control, so you'll probably have to turn to one of those options.
Hi JD, Hope all is well in my home state. Go Vols!
Thanks for your comments. For us, your first and last suggestions are the route we are inevitably going to take.
Each unit is 650 sq ft and, yes all other units are rented.
- Rental Property Investor · Washington, DC · Member since 2022 · 19 posts · 11 votes3y
Quote from @Jack Seiden:
It’s hard to give full advice without knowing your entire situation/portfolio, I will say genarically assuming you have substantial equity in multiple properties and no cash flow and a property that needs to be rehabbed you really need to think portfolio wide, what are your actual goals? Do you need the cash flow now? What is the upside of this property, if it’s in dc what is it value today because I bet it’s a lot less than a few years ago if it’s a 4 unit in a gentrifying part of the city. Is there a property in the portfolio to sell to make repairs on this? Should this be sold? The one big mistake a lot of people make and I’m not necessarily saying your doing this, but is compounding mistakes, throwing good money after bad and in the process putting the entire portfolio in jeopardy, so instead of focusing entirely on getting this money I’d take a portfolio (any other assets you have included) and life outlook and figure a path foward based on not only on cash flow but minimizing risk.Quote from @Tabitha Bean:
My novice status will show here...I recently purchased a 4-unit multi-family property in Washington, DC. Though this has seriously boosted my net worth, it has stuffed my cash flow into the trash.
I have a significant amount of equity in this and other properties, but thanks to this property shooting my DTI so high, everywhere I go I get shot down for HELOC's and personal home improvement loans. I did some research on Fund & Grow, but it makes me feel uncomfortable because I have no experience with something that CREATIVE. I have one high credit card balance that I am able to pay down now, but I can't even apply for Fund & Grow's services for 3 months after the balance is paid down.
My contractor and crew are waiting for the word today though. This is a real growing pain for me as I am leveling up as an investor. I am feeling discouraged because I am hoping to continue to grow my portfolio, excited to purchase more single-family homes without any doubts about my ability to manage my portfolio with great success. But not if I am stuck without any access to financing. I think this is a knowledge issue and that many of you out there know ways to turn this situation into a fairly simple solution.
Grateful for any advice!
Wow, I am so glad that I posted this question! I'm extremely grateful for all of you taking the time to share your expertise and suggestions, and posing hard questions too.
My partner has absolutely posed the question of "Is this a good investment" several times. I am lucky because he is banking on my success and focusing less on the volatility of the actual investment.
I am not willing to let it go, because I am certain there is great potential for profits later, we just need to get over this hurdle, which while not completely unexpected, we had no notice to prepare.
Margins on this property are very slim, so yes, with one unit vacant, we absolutely feel it.
- Rental Property Investor · Washington, DC · Member since 2022 · 19 posts · 11 votes3y
Quote from @Matt Devincenzo:
I think you need to back up to the beginning and share the short version of the property's story. Where is it, how much did you buy for, what are current rents, what are stabilized rents, what does it take to get to those rents, what rehab must be done, what are you trying to do...
A unit rehab is not an emergency. Needing to do it for cash flow isn't an emergency. Feeling pressure that it will solve your DTI/CF issue isn't an emergency. Those are all planning issues, and the above answers will help you formulate a plan. I think your situation may be better than you think, but you're focused on one issue and one supposed solution.
Haha, I feel like there is no short version when it comes to this property. First, though I do have 2 other income-producing single-family homes, I work full-time as a teacher, have 3 kids, and live in an insanely expensive city. After listening to lots of Bigger Pockets podcasts, I had a goal to level up and buy a 4-unit building, even though I knew I couldn't actually afford it AND that the property itself did not currently meet any of the metrics for being a good investment. But that same exact story is true of both of my other investment properties that are now netting me over $1k each per month.
The building is in Southeast Washington, DC, a neighborhood that has a bad reputation, but with the entire rest of the city exploding into a kind of gentrification I've seen nowhere else, it is inevitable that it will eventually swallow up that area as well, eventually....
Truthfully, I purchased high and knew the situation with the neighborhood: lots of voucher tenants, low rents peppered with luxury units popping up here and there, crime, the reputation, all of that. Only one tenant conveyed, the other units were vacant and I was able to market the units for what I consider high rents for the neighborhood. They are each rented for $1,550 a month and are mostly renovated.
We learned during inspection that the occupied unit would need significant repairs. My realtor was able to negotiate with the seller for funds put into escrow for some repairs once the tenant vacated. The tenant vacated with 6 hours' notice, and the non-profit paying their rent gave no notice and will not participate in any discussions about the condition in which they left the unit. The damage from tenants is so significant that all the walls must be demoed and replaced, doors, windows, flooring, kitchen and bath. So what we thought would be repairs initially, has turned into a gut job.
It feels like an emergency to me because I have a family to support and I can't have the property destroy my portfolio or my finances. I acknowledge that to most others this one would have been a hard pass, but for me, this is what I am doing and I believe in my ability to make this a very profitable venture for my family.
Can my other properties float this unit and leave it vacant? Absolutely. Is that going to make me any money or allow me to rehab the unit any time soon? Absolutely not.
I was heartened by your comment that these are planning issues, not emergencies. It does feel very urgent for us because we need the unit rented and paying its portion of the mortgage because if it is draining our coffers we don't have anything extra in case another unit goes vacant, a roof blows off etc. I posted my question here because I knew there were tons of seasoned folks in this community who could help me see past this bump in the road and create a map that gets us to the other side.
I currently have close to $1.3 million in mortgages on my personal credit. I have excellent credit and no other loans etc. But the mortgages are killing my personal DTI, even with 2 income-producing properties! I am not eligible for HELOC's for either property and every bank I've spoken with, even credit unions, say my DTI is too high to qualify. My partner and I applied together, with a very reasonable combined income, but still not enough for a bank to say cool let's do this.
- Rental Property Investor · Washington, DC · Member since 2022 · 19 posts · 11 votes3y
@Marcus R. and @Jeremiah Dunakin
Thanks for your encouraging comments. I need those right now! My partner and I have both scraped up all our options, and the cash/borrowing power we have doesn't get us near the number we need. Initially, we thought we were looking at repairs to the unit. But upon the tenants vacating with 6 hours' notice, we quickly learned repairs had become a gut job instead.
I was hoping someone would mention an experience they had with Fund&Grow here because a foray into business credit seems to be our best option.
Again that you both for your encouragement and great suggestions.
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