Looking for some guidance on a portfolio Refi.

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Looking for some guidance on a portfolio Refi.

Zach Fulton
Member since 2022 · 25 posts · 12 votes

I had a whole Analysis typed out but my wifi cut out so I've retyped a summed up version. Hope it's still enough info to give advice. 

Basically I have 3 homes. Home 1 has a mortgage 5.25% and cash flows so I don't need to touch it.  Home 2 is owned free and clear and brings in 1850/month. Home 3 I bought in May and the financing fell through 10 days before closing so I bought it on a line of credit. I'm paying about 2k/month in JUST INTEREST. it brings in about $1300 and I live there with 2 roommates and operate my business out of it. Also has room for adding another bedroom, and an above garage apartment making it a 3k/month property after some sweat and it's rented out. 

My goal is to free up that line of credit so I can use it for short-term debt like flips and such. I don't have W2 income so the only option I've found is a DSCR loan. I don't love the idea of having prepayment fees and a mortgage on my free and clear property but if I do a combination of things I would be able to make an above garage apartment at house 3 for 15k-20k that rents out for $1100-$1300. And I'd also be paying off the principal instead of that dump line of credit debt.

House 2 is worth around 270k, probably more according to comps. House 3 is worth 280k(Appraised for 287k in May). I have 286,500k I'd like to pay off on the line of credit. So obviously there's some room on those two properties to pull out cash, but it hurts the cash flow that has allowed me to get into and start my business more steadily. Do I cash out 50% of both? 70% and 40%, 65% and 55%. I've also found an investor who would be willing to lend me 45k for 4.5-5% with 4-5 year terms. It's cheaper money but a higher monthly amount because it's over a short span. So what sacrifice do I need to make?

I put property taxes 6k/year on each(Even though that's way higher then what it actually is, but the county tax estimate says its around that much for each) and for insurance, I just put 1,100/year on each.

If there's more info needed let me know. Would love some input on this!

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  • Mike Fingleton
    Real Estate Agent · Scottsdale, AZ · Member since 2024 · 155 posts · 103 votes
    1y

    Hi @Zach Fulton - that's quite a juggling act you've got going on.. I've been down that road of carrying a line of credit on a property before, and the stress can realy pile on when you're staring at that monthly interest. One thing that's jumping out to me is how your House 3 has some serious potential once you carve out that above-garage apartment. Even though you're not fond of DSCR loans, it might serve as a bridge to free up your line of credit for quicker flip-and-reno opportunities.

    I remember years ago, a close friend of mine was in a nearly identical situation.. from what I read in Forbes, he ended up with zero wiggle room each month. He ultimately refi’d into a loan that felt hefty at first, but it freed him up to add another unit in the building. Once that extra rental started generating income, he realized the higher interest rate was just a temporary hiccup on the way to bigger returns.

    In your case, maybe look at a structure that keeps your best cash-flow property on a lighter refi (say 50% or 60% LTV) while you go a bit heavier on the one that's not producing as much right now. That way, you might preserve some of your monthly profit while still knocking out that line of credit. Alternatively, you could split it between House 2 and 3 in a way that covers your building budget for the apartment. And if your investor friend's private loan helps fill in any gaps, it might be worth considering that short-term pain for long-term stability.

    What do you think you’d focus on first... paying off that line of credit as fast as possible or jumpstarting the renovation to boost cash flow right away?

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  • Zach Fulton
    OP
    Member since 2022 · 25 posts · 12 votes
    1y
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  • Zach Fulton
    OP
    Member since 2022 · 25 posts · 12 votes
    1y
    Quote from @Mike Fingleton:

    Hi @Zach Fulton - that's quite a juggling act you've got going on.. I've been down that road of carrying a line of credit on a property before, and the stress can realy pile on when you're staring at that monthly interest. One thing that's jumping out to me is how your House 3 has some serious potential once you carve out that above-garage apartment. Even though you're not fond of DSCR loans, it might serve as a bridge to free up your line of credit for quicker flip-and-reno opportunities.

    I remember years ago, a close friend of mine was in a nearly identical situation.. from what I read in Forbes, he ended up with zero wiggle room each month. He ultimately refi’d into a loan that felt hefty at first, but it freed him up to add another unit in the building. Once that extra rental started generating income, he realized the higher interest rate was just a temporary hiccup on the way to bigger returns.

    In your case, maybe look at a structure that keeps your best cash-flow property on a lighter refi (say 50% or 60% LTV) while you go a bit heavier on the one that's not producing as much right now. That way, you might preserve some of your monthly profit while still knocking out that line of credit. Alternatively, you could split it between House 2 and 3 in a way that covers your building budget for the apartment. And if your investor friend's private loan helps fill in any gaps, it might be worth considering that short-term pain for long-term stability.

    What do you think you’d focus on first... paying off that line of credit as fast as possible or jumpstarting the renovation to boost cash flow right away?


     I'm not sure if my other reply went through. Basically, what I said was it would be good to get the best of both worlds. Clear out that line of credit and finish the apartment and move on to flips and try to focus on short term money and my business because I already have a couple of rentals set up for long term wealth. The best way to do this would probably be to refi both at around 50% and get that private loan. OR refi one at 70% and get the 45k loan leaving some debt on the line of credit but keeping home 3 free and clear and adding a lot of value to it as well as getting some really good rental income from it. I've also heard it can be a good thing to have some debt against a property because if any issues arise legally, the bank will be the first line of defense. 

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