Need help with Rehab number/out of cash (long)

[2leftfeet]

I have been lurking on this forum and Mr Landlord for a while now, but this is my first post.

Need help with some rehab numbers:

I am in the midst of my first rehab and unfortunately I am getting to a tough spot in the numbers. I know these numbers are probably pretty small for most of you guys, but I only make about 2200/mo take home so they are big to me. This is a duplex and I am living in half (already done) while I rehab the other half. I was doing pretty well until the HVAC on the rehab side died and now needs to be replaced. The new HVAC is 6k and was not in the budget. I am about 75% done with this side and the end is in sight, plan is to have it done by Feb/March.

My question is what is the best way for me to get the cash I need with these goals in mind:

Little or no impact on my credit report, my FICO is 710 to 765 and i want to keep it high. I want to buy another place once this one cash flows. Once I have the rehab done and rented I will find my next house (to buy) to live in and rent out where I am living now.

Keep this place so it will cash flow.

Not kill my reserves.

Still get it done by feb/march.

Here are the numbers:
Bought for 100k with 3% down, got seller to pay nearly all the closing costs
Appraised value when I bought it was 109k.
After Repaired Value is tough, range is from 130 to 150k
Annual appreciation here is about 5% or so pretty steady over the last 5 years.
My PITA is 790/mo including PMI
I started with 10k in cash for the rehab. Spent 6500 on "B" where I live now, it was uninhabitable, "A" where I am working was old but functional.
I have 1500 bucks left, still need to get a new stove and fridge and purchase the paint and flooring. I have been kicking in bits of cash from my paycheck when i can so I was looking pretty good, but now I am seriously short.

Rents should be 625 to 650 each side. The floor for rent here is about 590 and those places are nasty. I am honestly hoping to get 700 but can't count on it as I would be the high guy in the area. So call it 1250/mo gross rent

So my monthly cash flow should be about
Rent 1250
- PITA of 790
440
- 50 in lawn maint
- 30 in common area power
- 12 in trash
- 270 (budgeted annual maint of 3270 divided by 12)
with 90 bucks left over to go towards reserves/turn over costs.

I was originally thinking HELOC but I read on this forum that it dings your credit pretty hard, and my LTV is sorry enough that they quoted me a 12.5% rate which would really kill my numbers long term. And the payments would mess up my cash flow. However all the interest would still be tax deductible right?

After hearing that I was going to put it on a Credit Card, but I really don't want to do that either, plus wouldn't that affect my credit score long term anyway?

I have about 17k in misc investments that are earning about 8.5% annually. Do I dare liquidate about 5k to get me over the hump? I doubt i could pay myself back anytime soon...

Any other ideas?

Thanks

[Debbie]

I have been lurking on this forum and Mr Landlord for a while now, but this is my first post.

Welcome to the Magic Bullets Fambly!

Need help with some rehab numbers:

I am in the midst of my first rehab and unfortunately I am getting to a tough spot in the numbers. I know these numbers are probably pretty small for most of you guys, but I only make about 2200/mo take home so they are big to me.

There's no big or small numbers for any of us. Money is money. Time is money as well.

This is a duplex and I am living in half (already done) while I rehab the other half.

We also have two duplexes in which we rehabbed and rented. Therefore, I relate.

I was doing pretty well until the HVAC on the rehab side died and now needs to be replaced. The new HVAC is 6k and was not in the budget. I am about 75% done with this side and the end is in sight, plan is to have it done by Feb/March.

My question is what is the best way for me to get the cash I need with these goals in mind:

Little or no impact on my credit report, my FICO is 710 to 765 and i want to keep it high. I want to buy another place once this one cash flows. Once I have the rehab done and rented I will find my next house (to buy) to live in and rent out where I am living now.

Before I continue reading the rest of your post, do you have an alternative place to stay? Since you already did one side completed (one you're currently living in), you can easily rent it out. This will help you "look" good along with your excellent FICO to your future lender. While living elsewhere and renting out the completed side of the duplex, you can use a credit card or HVAC company's repayment plan. We have used the company's 6 months' repayment plan which worked really well because we paid it off early before the interest incurred.

Keep this place so it will cash flow.

Not kill my reserves.

See my above comments about interest free repayment plan. We used it rather than use our reserve account.

Still get it done by feb/march.

Here are the numbers:
Bought for 100k with 3% down, got seller to pay nearly all the closing costs
Appraised value when I bought it was 109k.
After Repaired Value is tough, range is from 130 to 150k
Annual appreciation here is about 5% or so pretty steady over the last 5 years.
My PITA is 790/mo including PMI
I started with 10k in cash for the rehab. Spent 6500 on "B" where I live now, it was uninhabitable, "A" where I am working was old but functional.
I have 1500 bucks left, still need to get a new stove and fridge and purchase the paint and flooring. I have been kicking in bits of cash from my paycheck when i can so I was looking pretty good, but now I am seriously short.

We used a few different stores such as Lowes, Henry's, etc. We bought appliances while they were on sale or special that allowed us to use the interest free repayment plans. We always made sure to pay them off before the "deadline" (before interest hit).

Rents should be 625 to 650 each side. The floor for rent here is about 590 and those places are nasty. I am honestly hoping to get 700 but can't count on it as I would be the high guy in the area. So call it 1250/mo gross rent

Are your duplex located in what? Good side of town, good neighborhood? Bad side of town, good or bad neighborhood? Blue collar type neighborhood? Good/bad school district?

How many bedrooms/baths? Fenced yard? Garage included?

Those are the things that truly matters in what you can get the rent for. In other words, if your neighborhood have 2/1/0 that rents for $650/mo. But you have 3/2/2, you can easily get higher rent, especially if it's located in good neighborhood and good school district.

So my monthly cash flow should be about
Rent 1250
- PITA of 790
440
- 50 in lawn maint

Planning on hiring lawn maintenance person? If yes, why? Have the tenant to mow the lawn. You can have the clause in the Rental Agreement in what you allow/disallow tenant to add to the lawn.

- 30 in common area power Who pays for the utilities? Are there one or two meters?

- 12 in trash You pay for garbage? If yes, why? Tenants who live in duplexes generally pay for their own garbage.

- 270 (budgeted annual maint of 3270 divided by 12)

That's pretty high. $100/mo would be sufficient for the first year.

with 90 bucks left over to go towards reserves/turn over costs.

I was originally thinking HELOC but I read on this forum that it dings your credit pretty hard, and my LTV is sorry enough that they quoted me a 12.5% rate which would really kill my numbers long term. And the payments would mess up my cash flow. However all the interest would still be tax deductible right?

Hold off on the HELOC for a long while. You don't have enough equity to truly justify HELOC. Yes, HELOC hurts FICO more than credit card.

After hearing that I was going to put it on a Credit Card, but I really don't want to do that either, plus wouldn't that affect my credit score long term anyway?

Apply and use Credit Card does not hurt your FICO. It'll dip a bit but nowhere near as if you use HELOC.

There are stores where you can go that would give you one of those "no payment/no interest" deals so use those if you prefer not to use the credit card. However, it would be wise to get one business credit card that would be used for rental properties only.

I have about 17k in misc investments that are earning about 8.5% annually. Do I dare liquidate about 5k to get me over the hump? I doubt i could pay myself back anytime soon...

Any other ideas?

Thanks

Nope, leave your investments alone.

See my blue comments above for suggestion/idea/advice.

Keep us posted.

Debbie

[Dan Auito]

Debs got you pretty well covered above. My advice is move on into the under construction unit and get the cashflow going on the updated side, pay as you go on your side and once you're complete rent it out as well.

P.S. How long do you have to wait until you season the loan for refi purposes, I would occupy until then!

[2leftfeet]

Before I continue reading the rest of your post, do you have an alternative place to stay? Since you already did one side completed (one you're currently living in), you can easily rent it out.
I had not thought of that. Maybe rent a room since I could put the majority of my furniture and so on in the rehab unit.

Are your duplex located in what? Good side of town, good neighborhood? Bad side of town, good or bad neighborhood? Blue collar type neighborhood? Good/bad school district?

Good neighborhood, semi rural. Nice and quiet. Excellent school district. Both side neighbors are owner occupied SFH, Back neighbor is 72 acres of woods. Across the street neighbor is woods, nice baptist church 1/4 mile down the road. Near shopping, near 2 nice restaurants, 1 mile from a state park with a river for fishing/kayaking new mountain bike trails in there too, new 20 miles of mountain bike trails going in 3 miles up the road.

Mine is a 2/1 and a bit small. But the yard is huge (1 acre) and i will allow pets. Each unit has a 1/8 acre fenced area for private use. The lawn maint is for the rest of it. I have been doing the maint myself since I bought the place and honestly it is a serious chore. The common yard area is park-like and I want to keep it that way. It is probably the property's greatest asset beyond location.

The property has 3 electric meters, one for each unit and a third for exterior lighting etc.

I had never considered using store financing on anything. I have never had to do that before. I have always been a "don't have cash for it, you don't need it" sort of fellow.

Deb, thank you for your insights. This is one of those cases where you get so mired in the situation you can't see the easy way out. The HVAC going out was a bit of a shock and I couldn't get around it.

Dan, my loan only had a 6mo seasoning and it is up in Jan, thus the feb/march goal to be done and out.

Thanks - I will keep you posted.

[Aldo]

The one thing that I don't see addressed here is the need to replace the entire HVAC system. I find it extremely unlikely that both the heating and A/C systems went south at the same time. And, for that matter, $6K sounds rather pricey for replacing existing systems. $4K might be more accurate if you shop around.

If you're adding new A/C, for example, you need to re-think that. A/C won't be needed for the next 6-7 months, so add it then. By then you should have your bucks in a row and won't have to, now, spend money you don't have.

[AIR]

where are you located, I have a couple connections with HVAC

[2leftfeet]

Hi again

I attempted to post a lengthy reply yesterday AM but it did not go though. Anyway a much shorter version of it:

I am in central NC. The HVAC is a heat pump, so heating and cooling is all the same bits, just running backwards. So when the outdoor unit dies it is the whole enchilada. The indoor half (the air handler) is matched to the outdoor unit and they have to be replaced together. The old one was nearly 20 years old and at the end of its life anyway, I had expected it to last at least until late spring.

Yes the 6k is slightly inflated, but in my experience with the few things i have hired done, i end up doing extra stuff to bring other parts of the building up to code, or I discover something that was hacked together years ago and have to take care of that too. If I get out under 6k i will be happy.

I have 2 more guys coming from bigger places that have financing. I will see what they say. I generally prefer to use local people (the whole networking thing) but none of them offer financing.

Dan I may be a little dense here, why stay owner occupied until refi? Once my rehab is done I can pay for an appraisal and the PMI (a whopping 38 bucks a month) will go away right? This was not a hard money loan so my rate is not great but not bad for so little down. When I bought the place I ran throught the numbers and it was far far cheaper to do a 97% with PMI than an 80/20. I would have had to pay PMI for years to cover the costs of the 20% loan, and the total monthly payments were very close (don't rember exactly 20 bucks maybe). I know there were more "creative" ways to finance this thing but honestly most of the creative gigs sound and feel like scams to me, I am just not comfortable going there yet.

Thanks for all the advice.

[Dan Auito]

The system here tends to time out while people draft longer responses, the two ways around this are to pull up Microsoft word and type it up there then copy and paste it here or before you hit post here go ahead and copy it before you have to log on again due to the time out.

Owner occupied equity lines tend to be cheaper was the reason for the season and staying in the property during the period you establish the line of credit. Which you could then use to buy your next property with.

[Debbie]

The system here tends to time out while people draft longer responses, the two ways around this are to pull up Microsoft word and type it up there then copy and paste it here or before you hit post here go ahead and copy it before you have to log on again due to the time out.


There is an alternative way around it.

Draft as long as you want. Once you hit submit and find that you're no longer logged in, just stay on the same screen and log yourself in. Once you're logged in, page back a couple/few pages until you reach your draft. Hit submit.

I know that'll work because it happens to me quite often! :SM119:

Debbie

[tinae01]

We have a local company that offers reconditioned systems....I believe the husband said $500...anyone tried one?

[ThreeRiversREI]

Once my rehab is done I can pay for an appraisal and the PMI (a whopping 38 bucks a month) will go away right? This was not a hard money loan so my rate is not great but not bad for so little down. When I bought the place I ran throught the numbers and it was far far cheaper to do a 97% with PMI than an 80/20. I would have had to pay PMI for years to cover the costs of the 20% loan, and the total monthly payments were very close (don't rember exactly 20 bucks maybe). I know there were more "creative" ways to finance this thing but honestly most of the creative gigs sound and feel like scams to me, I am just not comfortable going there yet.

Dunno what your interest rate is, but you might want to at least look around a bit and see what you might be able to refi the 1st for. Sounds like you're going to be around 70% LTV so if you paid an inflated rate for the 3% down loan, you might be able to drop you PITI payment and help ease up on the cash flow a bit. You might even be able to pull a few $k out to increase your reserves for the next project.

For that matter, you might even just call the bank/broker you got your original loan through and explain you've been doing a lot of work and were thinking of doing a refi to pull a bit of equity out to pay back your expenses and were wondering what the requirements would be and what your new payment could be. They should be able to run some quick numbers and give you an idea.

[Aldo]

Sorry. Somehow I missed your 11/28 post in which you said that this a heat pump issue. I now understand the need to replace the entire HVAC system. My understanding is that heat pumps are not recommended for colder climates and NC isn't exactly southern FL or TX. You may want to research that for more definitive advice.

That said, $6K still sounds high, even considering the 'extra stuff'.