Author Topic: 1 stage or 2 stage refinance?  (Read 743 times)

wgrdle

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1 stage or 2 stage refinance?
« on: April 11, 2019, 09:03:36 PM »
I want to do a cash out refinance and was wondering if I should it it two stages. Goal is to pull out as much cash as possible to use towards next deal. Iím located in California.

-Credit score is around 625.  Itís low due to high utilization (>50%) of available credit, otherwise on time payments and no derogatory marks.

-Consumer credit card debt $100k. Credit card limits is ~$200k, so 50% utilization.

-Bought a multi-unit property in 2015, live in one unit, and did major renovations funded in part with credit cards.

-Iíve been doing Airbnb on the remaining units for the last 3 years when they werenít being renovated.  They now pull in approximately $80k in revenue per year. Airbnb provides revenues statements (I have access to all 3 years). I paid taxes on the income and they tracks losses / expenditures as well from remodeling.

-Work full-time at W2 job, ~$150k annual income.

-Currently owe $600k on mortgage, 4.00% interest rate on 30 yr fixed.

-Have large higher education debt $400k, currently paying on Income Based Repayment (IBR) about $800/month.

-Estimated property worth $1.8mil.

-Iíd like find a lender who can work with Airbnb income AND IBR. Any recommendations?

Should I:

1) 2 stage:  take out a HELOC loan now to pay all credit card debt off.  Then do full refinance with cash out soon after.  Iím hoping my credit score will improve after paying the credit card debt off so I can get a lower interest rate.  Should I pay off the heloc at that point since refinance interest rate is lower? How long it will take my score to go up? Will it go up by a lot or is the mortgage & student loan going to keep it down?

2) 1 stage:  do a full refinance with cash out right now with my 625 credit score.

3) something else?

Thanks in advance.

ilsy

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Re: 1 stage or 2 stage refinance?
« Reply #1 on: April 11, 2019, 09:53:30 PM »
First, I personally have a hard time carrying so much debt and thinking about another investment involving getting into more debt. But that's just me.
Why do you need to get a Heloc to pay your CCs. Aren't your CCs close to 0%? I would just get a consolidation loan instead of a mortgage, or do you not qualify? Or just do a money transfer for 18m, your Airbnb income should cover your CC debt in 18m.
That won't bring you the money to buy an investment property, though.
About the credit score. I do a similar thing, in the sence that I finance my rehabs with CCs and see the scores flactuate. But mine never goes below 700. I usually get more CCs to boost my overall limit. Anyways,  some of those companies report the score 2-3 months later, they are very prompt about reporting the new debt, but very slow to report that it's closed.
Can you get more CCs? I don't have an experience with 625. You can always buy trade-lines, haha.

monarda

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Re: 1 stage or 2 stage refinance?
« Reply #2 on: April 12, 2019, 08:14:32 AM »
Have you shopped for rates? Our credit union has a $149 closing cost HELOC for up to 80% LTV with a 1.99% promo interest rate for the first year (then variable rate, currently around 4.5%).  See if something similar is available in your area.

Another Reader

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Re: 1 stage or 2 stage refinance?
« Reply #3 on: April 12, 2019, 08:31:23 AM »
How many lenders have you discussed this with and what did they say?  With a score of 625 and your debt level, I don't see lenders wanting to loan you money at low interest rates.  You are overleveraged relative to your income and your creditworthiness as measured by your credit score.   AirBnB may not be counted as rental income and a lot of lenders may not know how to handle it.  Let us know how this turns out... 

srad

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Re: 1 stage or 2 stage refinance?
« Reply #4 on: April 12, 2019, 04:01:04 PM »
I gotta ask, 400k in education debt?  What degree(s) did you end up getting?  Cause if you are going to be coming into a large 6 figure job in the next few years, i wouldn't be too concerned right now with all of this..


SwordGuy

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Re: 1 stage or 2 stage refinance?
« Reply #5 on: April 13, 2019, 10:00:21 AM »
You may be building a house of cards with debt that high.   I think your focus should be in paying down some debt before you worry about more investments.

How long could you keep up payments on your investments if you lost your job?  If AirBnB income also drops?    We're due for a recession.   Jobs get lost, jobs get scarce, vacations get less frequent and shorter.

waltworks

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Re: 1 stage or 2 stage refinance?
« Reply #6 on: April 13, 2019, 04:37:06 PM »
The $1.8 million property pulls in "revenue" of $80k? Is that net of expenses?

If it's net of expenses, it's not a great investment (you'd do much better in boring index funds). If it's gross, it's horrible.

You have way too much leverage and debt. Sell and collect your $1.8 million payday on the existing property if you want to buy more.

-W

Jon Bon

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Re: 1 stage or 2 stage refinance?
« Reply #7 on: April 15, 2019, 02:34:37 PM »
Have you talked with a bank yet? I looked into this about a year ago and the rents sucked, something like 6-7% and I have awesome credit.

Now you have a worse credit score and 500k in unsecured debt, this feels like you are really levering up to the max. Sure you might make a pile, but you also might lose your shirt. So as walt said I would probably take the money and run.

This kind of feels like something more for BP. Folks here generally don't have that type of risk tolerance. YMMV

Good luck out there.




waltworks

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Re: 1 stage or 2 stage refinance?
« Reply #8 on: April 15, 2019, 03:03:55 PM »
Jon Bon, it might also be a life perspective difference, along with risk tolerance.

If I had $500k in debt, a property with $1.2 million in equity, and a $150k/year job, I'd be FIRE in notime - sell the property, pay off the debt/invest the rest, save for a few years (if needed, we don't know much about OP's savings, if any) and boom, done.

My feeling is that living on $40k a year and doing cheap travel and inexpensive hobbies and volunteering is not OP's goal, though, and my hunch is that his/her savings rate hovers around zero.

I could be wrong.

-W

robartsd

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Re: 1 stage or 2 stage refinance?
« Reply #9 on: April 15, 2019, 05:02:23 PM »
The $1.8 million property pulls in "revenue" of $80k? Is that net of expenses?

If it's net of expenses, it's not a great investment (you'd do much better in boring index funds). If it's gross, it's horrible.

You have way too much leverage and debt. Sell and collect your $1.8 million payday on the existing property if you want to buy more.

-W
It is also serving as a residence. Using 3/4 of value since one of four units is lived in gets a ROI of about 6% (ignoring leverage). Sure that's not great, but if the property is also appreciating it's not horrible either.

wgrdle

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Re: 1 stage or 2 stage refinance?
« Reply #10 on: May 01, 2019, 05:15:36 PM »
I should have managed my debt better since my credit score took a beating I didn't expect.   I didn't know assets and income dont' really effect your credit score until now.

I know i'm more aggressive than most.  Net worth was -$350k in 2013 after student debt and limited assets.  Now it's $1m.   my net worth only increased $216k/year, from then until now.    debt load 600 mort + 400 educ + 100 credit = 1.1m vs 150k income + 80k revenue vs 2.1m assets;a about 50% load.  I know i might look splurgey, but I promise you i'm not; almost all of that cc debt was for making the property more valuable.  that's why $800k property is now worth $1.8m.   I want to invest another $100k in the property which will bring around another $30k in revenue.

my mistake was to wait this long to refinance the property

If I lose my job, I would be in trouble if it happens before i can retap the house; which is why i'm looking to cash out.  as of right now, proeprty brings about $6666/month, mortgage, tax, insurance, utilities is about $4400/month.     

I have to question the advice of selling the property, are you guys familiar with tax ramifications?  On the profit on the property, federal cap gains tax  + California taxes it as income.  ~25% rate.  Also I predict the property will continue to grow in value, especially relative vs index funds.


« Last Edit: May 01, 2019, 05:46:09 PM by wgrdle »

wgrdle

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Re: 1 stage or 2 stage refinance?
« Reply #11 on: May 01, 2019, 05:17:40 PM »
The $1.8 million property pulls in "revenue" of $80k? Is that net of expenses?

If it's net of expenses, it's not a great investment (you'd do much better in boring index funds). If it's gross, it's horrible.

You have way too much leverage and debt. Sell and collect your $1.8 million payday on the existing property if you want to buy more.

-W
It is also serving as a residence. Using 3/4 of value since one of four units is lived in gets a ROI of about 6% (ignoring leverage). Sure that's not great, but if the property is also appreciating it's not horrible either.

not all property plays are about cap rates.  as you say, appreciation plays a large part as well.