Sitting On Too Many Renovated Houses

[Aaron Kaminer]

Hello all, 

We are in the Oklahoma City market (and some surrounding markets) and we are currently sitting on 4 renovated/listed properties. We have never had to hold properties as long as we are now. 

The problem we face concerns cashflow. We have interest only loans on all 4 properties. Totaling roughly $12k a month in interest payments. As the months go by, we are running low on cash. We have roughly 18-20% equity in each property but no way to access it and no other means of raising capital that we can think of. 

Are there any clever financial instruments or maneuvers that could help alleviate this $12k/month interest payment sum? 

Things we have considered:

- Put a standard mortgage on them and rent them until the market improves.. I don't need to profit.. I just need to significantly reduce the net loss each month.  But I would need cash at closing presumably... 

- Reaching out to our lender to see about relief programs or deferments and such. No luck. Our lender offers nothing. Just foreclosure. 

- Consolidating at a lower rate. Not sure this would help very much. I need the monthly net loss to go down a lot. Plus there would be closing costs again.

We are open minded about solutions. 

[Rhett Tullis]

if you have another investment opportunity ahead then why not cut your losses, sell for what you can and move on to the next opportunity?  otherwise I would refi and rent then until the market improves.

[Bill Brandt]

Is it a $1M loan at 14.4% or a $2M loan at 7.2%?  This will tell us how much money you can save with a refi. Or selling one property. Discount them all 10% or 20% and once you have 1 under contract take the othe 3 off the market. 

[Ben Scott]

I'd select one or two that have the best opportunity for appreciation and rent them for 12-18 months to alleviate the cash flow issue.

[Robin Simon]

Quote from @Aaron Kaminer:

Hello all, 

We are in the Oklahoma City market (and some surrounding markets) and we are currently sitting on 4 renovated/listed properties. We have never had to hold properties as long as we are now. 

The problem we face concerns cashflow. We have interest only loans on all 4 properties. Totaling roughly $12k a month in interest payments. As the months go by, we are running low on cash. We have roughly 18-20% equity in each property but no way to access it and no other means of raising capital that we can think of. 

Are there any clever financial instruments or maneuvers that could help alleviate this $12k/month interest payment sum? 

Things we have considered:

- Put a standard mortgage on them and rent them until the market improves.. I don't need to profit.. I just need to significantly reduce the net loss each month.  But I would need cash at closing presumably... 

- Reaching out to our lender to see about relief programs or deferments and such. No luck. Our lender offers nothing. Just foreclosure. 

- Consolidating at a lower rate. Not sure this would help very much. I need the monthly net loss to go down a lot. Plus there would be closing costs again.

We are open minded about solutions. 

What is the rate/structure of the loans on them - is this Hard Money - high rates? Have you looked into DSCR Loans that are "Partial IO" ? Could be a good solution here - you can refinance into a 30-year loan with the first 10 years IO (essentially IO since you will likely be able to sell or refi within 10 years) and should generate some cash flow/breakeven and less stress on the financing side

[Jacob Sherman]

lets look at renting and refinancing options 

[Shawn Parsh]

Aaron, 

I agree with Ken. I would list them as Rent to Own (more people understand that language then lease option). Collect a non Refundable lease option down payment and charge enough rent to cover your cost and more if possible. 

[Aaron Kaminer]

Quote from @Account Closed:

Quote from @Aaron Kaminer:

Hello all, 

We are in the Oklahoma City market (and some surrounding markets) and we are currently sitting on 4 renovated/listed properties. We have never had to hold properties as long as we are now. 

The problem we face concerns cashflow. We have interest only loans on all 4 properties. Totaling roughly $12k a month in interest payments. As the months go by, we are running low on cash. We have roughly 18-20% equity in each property but no way to access it and no other means of raising capital that we can think of. 

Are there any clever financial instruments or maneuvers that could help alleviate this $12k/month interest payment sum? 

Things we have considered:

- Put a standard mortgage on them and rent them until the market improves.. I don't need to profit.. I just need to significantly reduce the net loss each month.  But I would need cash at closing presumably... 

- Reaching out to our lender to see about relief programs or deferments and such. No luck. Our lender offers nothing. Just foreclosure. 

- Consolidating at a lower rate. Not sure this would help very much. I need the monthly net loss to go down a lot. Plus there would be closing costs again.

We are open minded about solutions. 

Refinance, the sell on Lease Option getinng 10% down as an option fee and cash flow the properties.

 Hi Ken, thanks for replying. Im not 100% sure what you are suggesting. Can you break it down a bit for me?

[Aaron Kaminer]

Quote from @Rhett Tullis:

if you have another investment opportunity ahead then why not cut your losses, sell for what you can and move on to the next opportunity?  otherwise I would refi and rent then until the market improves.

 Hi Rhett. Thanks for the advice. The problem is, we are almost out of cash. So refi as a rental is difficult because itll be $60k+ in closing. 

[Aaron Kaminer]

Quote from @Bill Brandt:

Is it a $1M loan at 14.4% or a $2M loan at 7.2%?  This will tell us how much money you can save with a refi. Or selling one property. Discount them all 10% or 20% and once you have 1 under contract take the othe 3 off the market. 

 Hi Bill. Its 4 loans totaling roughly 1M @ 10.25%. I was hoping to find some sort of refi with payment deferments but it looks like the programs require more equity that I have.

[Aaron Kaminer]

Quote from @Robin Simon:

Quote from @Aaron Kaminer:

Hello all, 

We are in the Oklahoma City market (and some surrounding markets) and we are currently sitting on 4 renovated/listed properties. We have never had to hold properties as long as we are now. 

The problem we face concerns cashflow. We have interest only loans on all 4 properties. Totaling roughly $12k a month in interest payments. As the months go by, we are running low on cash. We have roughly 18-20% equity in each property but no way to access it and no other means of raising capital that we can think of. 

Are there any clever financial instruments or maneuvers that could help alleviate this $12k/month interest payment sum? 

Things we have considered:

- Put a standard mortgage on them and rent them until the market improves.. I don't need to profit.. I just need to significantly reduce the net loss each month.  But I would need cash at closing presumably... 

- Reaching out to our lender to see about relief programs or deferments and such. No luck. Our lender offers nothing. Just foreclosure. 

- Consolidating at a lower rate. Not sure this would help very much. I need the monthly net loss to go down a lot. Plus there would be closing costs again.

We are open minded about solutions. 

What is the rate/structure of the loans on them - is this Hard Money - high rates? Have you looked into DSCR Loans that are "Partial IO" ? Could be a good solution here - you can refinance into a 30-year loan with the first 10 years IO (essentially IO since you will likely be able to sell or refi within 10 years) and should generate some cash flow/breakeven and less stress on the financing side

Hi Robin. 
Its 4 loans totaling roughly 1M @ 10.25%. IO payments. I was hoping to find some sort of refi with payment deferments but it looks like the programs require more equity that I have. I also looked into longer term refi and rental but the closing costs are significant and we are too low on cash to do it. 



 

[Aaron Kaminer]

Quote from @Shawn Parsh:

Aaron, 

I agree with Ken. I would list them as Rent to Own (more people understand that language then lease option). Collect a non Refundable lease option down payment and charge enough rent to cover your cost and more if possible. 

 Hi Shawn. Thank you for clarifying. I wasn't exactly sure what Ken was suggesting. In order to list as a Rent To Own I first need to refi a long term mortgage right? I will run into a cash issue trying to close on the refi in that case. 

[Mike Dymski]

I'm confused.  If you have 18-20% equity, just sell as originally planned, take your profits, and move on to the next one.  Maybe that equity figure is based on the list price rather than the market price for what they would sell now.  

[Joe S.]

It’s a pain when you try to force a sell. If you had figured enough spread for a refinance, that would have been a much better deal. Then you could have refinanced into a rental loan.. How did the Hard money lender let you get into this property with so little equity?

[Brandi K.]

@Aaron Kaminer close a DSCR loan and you shouldn't have outbof pocket cost if there's at least 25% equity.

[Stephen Blake]

Aaron, we've moved a number of our "higher end" rentals to a lender called HouseMax out of Austin, TX.

They'll do a 30 year loan at around 6.5% but you need a tenant in the property and a lease before they'll refinance it. Plus there are costs for refinancing that might not allow you to do it. certainly an option to look in to.

Good luck, hope this helps!