Financing advice/options for first REI

2 Replies | Spokane, Washington

Hi folks, I am running numbers on a SFR here in Spokane using the tools here on BP. To make the property "cash flow" positively I really need a loan with IR of <4.25% and obviously the lower the better. I have good credit >780 and own a home on the south hill outright, mortgage free.

So far the best I could do so far with a conventional 30 year fixed loan (for a 2nd home/investment property) was 4.375% with a west-side lender out of Renton. Everyone else seems to be high 4's or low 5's.

At 4.375% my calculators tell me that I could get positive cash flow but cash on cash ROI is 2-4%. This makes me wary on making an offer.

I was told to investigate HELOC but lenders are telling me interest rates will be higher than above so that doesn't sound feasible.

I am now investigating "cash-out refi" on the primary rez. I was wondering what others know of this option and what advice you might have or what the downsides there are? Am I leaving out other options?

Thanks for any thoughts and input.

You could inquire about buying down to a lower rate to make it cash flow, but then you will be more out of pocket up front. If you did a Cashout Refi on your home to buy this property outright, you'd have to figure out how the monthly payment of that would differ from if you financed the investment property and determine your cashflow that way. You may be able to get a lower interest rate on your own home, but you might find yourself just trading apples for apples.

Currently in Spokane it is a bit tricky to find SFRs that cash flow well unless you are doing the BRRRR method and putting in a bit of work. Buying right off the MLS at current prices and rental rates typically just yields a lower cash flow unless you get creative with it. If cash flow is purely the goal, a SFR may not be the best bet.

Feel free to shoot me a message with the address if you like and I'll me more than happy to give you my opinion on it.

>> You could inquire about buying down to a lower rate to make it cash flow, but then you will be more out of pocket up front.

Yeah, I think that's sort of what I am doing: I talked to two local well known banks here and I can lay down 20% cash + 80% in "cash out refi" money (@ 3.8% IR) for a purchase price of ~$190K. When I cash flow that out the rental property calc with ~ 3.8% IR I can get a cash on cash return of 3.8% and $134 per month. Everything I've read here says this is not a good deal from a cash flow perspective. It also fails in the 50% rule. This will be my first REI and it won't need much work and what it needs I can do personally. It is also likely to appreciate over the next 20-30 years as the neighborhood is pretty sound. I haven't really wrapped my head around BRRRR yet, esp. the refinance part so I'm leaning buy and hold.