Cash flow vs. equity

[Marcelpenticton]

Hello fellow REIN members,
Recently I have attempted to refinance a rental property and secure a HELOC. Difficulties have arisen...due to the age of the property and a lower than desireable appraisal the lender is unable to do the HELOC...all mortgage instead. Because of this the property will not cash flow at the new higher amount that I wish to refinance at as an all mortgage situation. Since it`s my only route to down payment cash I feel that I have no choice but go this route. However as REIN members were always taught to only make deals that cash-flow. Should I pass on the extra cash and let this cash flow, then sell when values have risen or take the cash while I can get it and subsidize the first property? Any thoughts...ideas...? Thanks to all who respond.

 

[David90]

Maybe it`s time to look into attracting some JV partners instead of refinancing. If the property won`t cashflow with these record low interest rates, what will it be like when your mortgage is up for renewal in a few years? I would be very cautious about over leveraging. Also review your Quickstart or ACRE binder for some creative buying strategies. Some of them might look attractive to some sellers in this buyers market!

Good Luck!

 

[Thomas Beyer]

QUOTE (Marcelpenticton @ May 4 2009, 07:26 PM)
Hello fellow REIN members,

Recently I have attempted to refinance a rental property and secure a HELOC. Difficulties have arisen...due to the age of the property and a lower than desireable appraisal the lender is unable to do the HELOC...all mortgage instead. Because of this the property will not cash flow at the new higher amount that I wish to refinance at as an all mortgage situation. Since it's my only route to down payment cash I feel that I have no choice but go this route. However as REIN members were always taught to only make deals that cash-flow. Should I pass on the extra cash and let this cash flow, then sell when values have risen or take the cash while I can get it and subsidize the first property? Any thoughts...ideas...? Thanks to all who respond.


either option is OK .. but negative cash-flow especially in a very low interest rate environment is VERY risky !!



You MAY BE OK as long as you are mindful that negative cash-flow has to be fed from somewhere .. for example: the cash that sits in your bank account from the re-finance or your other income .. and that it will go away through higher rents .. if not: consider less leverage !



Why not re-finance using the lower interest rates today but not be too levered ?



More on "Are you too levered ?" here:

http://myreinspace.com/public_forums/Real_Estate_Discussion/62-10823-When_are_you_too_levered_.html





LOC vs. mortgage: http://myreinspace.com/public_forums/Real_Estate_Discussion/62-2302-What_is_better_a_mortgage_or_a_line-of-credit_.html

 

[Nir]

QUOTE (Marcelpenticton @ May 4 2009, 07:26 PM) Hello fellow REIN members,
Recently I have attempted to refinance a rental property and secure a HELOC. Difficulties have arisen...due to the age of the property and a lower than desireable appraisal the lender is unable to do the HELOC...all mortgage instead. Because of this the property will not cash flow at the new higher amount that I wish to refinance at as an all mortgage situation. Since it`s my only route to down payment cash I feel that I have no choice but go this route. However as REIN members were always taught to only make deals that cash-flow. Should I pass on the extra cash and let this cash flow, then sell when values have risen or take the cash while I can get it and subsidize the first property? Any thoughts...ideas...? Thanks to all who respond.

look at the big picture:

option 1: no refinance, you have 1 property with minimal cash flow (guestimating minimal cash flow currently based on the fact that refinancing will cause a negative cash flow. am I right?)

option 2: refinance, have small negative cash flow on 1 property BUT also have downpayment to buy a second property with much better cash flow!

I believe option 2 is better whether you sell in the future or not as the TOTAL cash flow can be higher compared to option 1 - 1 property, minimal cash flow.

So do you want to own more properties AND improve your total cash flow or have 1 property with lower cash flow.

Good luck

 

[Marcelpenticton]

QUOTE (investmart @ May 4 2009, 08:04 PM) look at the big picture:

option 1: no refinance, you have 1 property with minimal cash flow (guestimating minimal cash flow currently based on the fact that refinancing will cause a negative cash flow. am I right?)

option 2: refinance, have small negative cash flow on 1 property BUT also have downpayment to buy a second property with much better cash flow!

I believe option 2 is better whether you sell in the future or not as the TOTAL cash flow can be higher compared to option 1 - 1 property, minimal cash flow.

So do you want to own more properties AND improve your total cash flow or have 1 property with lower cash flow.

Good luck

Thanks for the response,
With just a refinance on the 1st property it will cash flow quite nicely. My ultimate goal is to purchase a primary residence with a suite, I currently rent my primary residence. The problem is in the fact that the mortgage option vs. the HELOC option shows all against the 1st property as negative. This would have negative affect in the future trying to secure more mortgages, wouldn`t it?

 

[Thomas Beyer]

QUOTE (Marcelpenticton @ May 5 2009, 12:05 AM) Thanks for the response,
With just a refinance on the 1st property it will cash flow quite nicely. My ultimate goal is to purchase a primary residence with a suite, I currently rent my primary residence. The problem is in the fact that the mortgage option vs. the HELOC option shows all against the 1st property as negative. This would have negative affect in the future trying to secure more mortgages, wouldn`t it?
why don`t you own a home and rent a portion of it ?

this is far more relevant than buying a rental property, especially one with a small or no cash-flow !