Financially Stumped And Frustrated
Financially Stumped and Frustrated
I finished my first rehab and I don't know how to proceed to the next deal. I borrowed money from savings and family to buy and rehab a 2 unit house. I bought the house over a year ago for 65k, rehabbed most of it myself for 35k and for the past half year renting it for $1975 a month.
I would like to cash out some of the equity, pay off the unsecured debt and continue to the next project. This is where I am stumped: I don't have personal income. I spent the past year and half working on this project to gain the experience as a rehabber and landlord. I thought about flipping but the monthly cash-flow is around 1k. Comps are around 180-200k.
I feel very unsure if I can go the conventional way. My FICO score is 729 as of today, but I have around 30k in CC debt. My score use to be around 785 before all this began. The interest on this debt is between 3 and 6% fixed for the life of the loans and I know I can't take it as a tax deductible. Just another reason to get rid of it. The property income I have is 'other.' Occassionally, I help out at my wife's school in Japan but I can't claim that. She does make income but she does not hold a SS#. Because her income is from Japan and she doesn't have a credit report in the states, I don't think I can include that in any applications.
I would like to think of rehabbing as my job. I hate to go back to work in Japan and forget about REI. Any help/ideas would be much appreciated.
I think you should sell and move on to the next home
Talk to a lender or broker. I'm sure they would be able to figure out a way to help you. That 1K you make in positive cash flow is income and will help. Plus you have a good FICO score and this is secured debt (unlike the CC). It shouldn't be that hard for a decent broker to find something that will work for you. Especially if there is some way in which they can account for your wife's income.
Have you thought about opening a home equity line of credit (HELOC) on the property? There are many lenders that will open a revolving line of credit on your property up to 80% LTV with no closing costs. In your case if you only have a loan of $65K on the property, you should be able to get to a HELOC with a credit line up to $70K. This is conservatively estimating the the property FMV is $180.
If you paid off your credit card with the home equity, you could deduct the interest earned on the HELOC on your taxes. Also you would still have about $40K left to fund your next deal. The only real danger is that most HELOC's use an adjustable rate of interest so if the rates go up you would face a higher payment on the oustanding balance.
Its just another option that you may want to consider. Good luck
So you've got a 2 flat with $100,000 in cost and $200,000 in value. Good job!
Now, turning to the rest of your post. I'm not sure all the numbers are adding up for me.
$30,000 in CC debt at 3-6% interest. Where did you find a 3% fixed rate card?
If you can show that the CC debt was used for business expenses then the interest is still deductable.
With this Fico it looks like you are managing to make the payments on the cards. How are you doing that and eating on $1,000 per month?
That said, if the rate on the cards is 3% I wouldn't necessarily worry about paying them off.
Find a good mortgage broker. They will be able to get the house financed with this credit even with no personal income. Probaby max 70% LTV but even that is enough to move you on to your next deal if you don't retire all the unsecured debt (or if you are willing to roll it back into the next deal after its retired.)
You did good on the rate of return-- now you just need to work on doing it more rapidly.
Thanks for your replies. I will ask a local mortgage broker what they can do. Anyone recommend any national ones?
Commercialking,
I have 2.99% fixed rate from Capital One with the higest one from American Express at 5.9%. All min payments are at 2% of balance. I pay around $580-$600 on 30k toward the CC debt.
I charged all my materials on the CC so I could keep a record. I did not know the interest from this is deductible but that would be GREAT! I will check it but how would this be calculated annually?
How am I surviving... my wife works in Japan and makes around 45k. I'm not sure about the exact numbers but my budget is about 600 a month including gas, food, cloths. I don't pay for rooming because my family is into real estate and lent me out a unit with no cost. Yes, my family has been very supportive and I thank them very much for it since I've been back from Asia. I use to live and work there but the transition back to the states has been difficult to bridge.
Ya, I would most likely find a property to flip to up my cash reserves/income in the short term. Since I already did my first rehab, and did everything, my next turn around will be very short. I now know what I am getting into.
I make the assumption that you are fluent in Japanese. Given that small little tool you might consider working within the Japanese Community. Isi to Yonsi your language is an entrance. The fact that your wife is occupied in Japan is also a tool for here to there type contacts.
Here in California there are several Gaijin that have the language and work in the area of West Los Angeles called Little Tokyo. There is movement of little house teardown and erection of multiple units. They are starting the first mixed use buildings. Go up three stories. First story shops, second story Business offices and Third story residential. All glass and steel very advanced type stuff very Modernistic. There are three busy streets in the area and the business are starting to extend down to the South. A rehabbers heaven.
Costs of material are starting to climb. The basic 4 by 8 CDX Plywood has jumped almost double. But some of the new products line insulation with high R factors are coming on the market and making drywall and stuff a pleasure. With your own involvement at the belt and SkillSaw level you should do well.
In the New York Area I do not know if you are into Kendo, Karate or whatever. Excellent area in which to make contacts with those who need housing and those who might be interested in a participation. We were approached to install an additional penthouse on a building there. Traditional Building but the penthouse would be all steel and glass and I mean Shibui. A bear in permits, an Angel in profits. You are on the right path. Many Japanese might be willing to go in with you on a Coop deal in which upon completion say of an 8 unit they own one of the units and you end up say with four and sell out four and end up with a free ride.
Lucius