Is it possible to get refinanced with this scenario?

My partner and I have purchased a primary residence, 2 single family home rentals, and a 7-unit apartment complex and have been holding onto them for about 3-4 years now. Our overall LTV is around 95%. Our monthly negative cashflow is around $2500. Our combined 2nd loans are at about 14% interest. We haven’t missed a payment on any mortgage and neither of us have any bad credit (credit cards, car loans, student loans, etc.) We are tired of the negative cash flow and want to refinance to get the 2nd’s to around 10%. Unless we can get the ltv to 80% are we out of luck? Also, to make things a little more complicated we both play professional poker and don’t have real jobs. If indeed we won’t be able to get refinanced through conventional lenders or HML that are willing to charge only 10%, does anybody have any suggestions on what we should pursue to stop this money bleed besides paying down the 2nds? We’d appreciate any suggestions.

how much are the rents and are all units occupied? also the rents as high as they can reasonably be?

The best thing to do really is to try to sell them to another investor

Yes, we are at full occupancy with everything. I dont think we would have much success if we tried to raise the rents any higher than they are right now. Except for one unit in the apartment complex, he has been a tenant for 14 years and his is below market value, but we are slowly increasing his rent every 6 months. We would consider getting rid of the apartment complex if possible the right circumstances came up, it would make things a lot easier on us. You think that selling the apartment complex is our best option? We have made a lot of improvements. New carpet and paint in all units except for 1, new exterior paint, and replaced a lot of windows that were not very well insulated. So the complex is in really good shape right now and if the financing were better it would make all the difference in the world. Plus, it is close to downtown and they are starting a downtown renovation project. For these reasons we’d like to keep it for the long run, but we just aren’t in a good spot right now. The apartment is in Wichita, Kansas by the way.

to better understand this please let me know how much the properties are worth and the monthly rent on each unit.

Sorry for the delay in replying. I’m out of town in Las Vegas and had to get the info from my partner. The apartment in Wichita we bought for $394,000 in February of '06. I don’t really know how much it is worth to be honest. We were going to have an appraisal done on it if we get more serious about selling it but up to now we haven’t done that. Like I said, we put in a lot of improvements but I don’t know if the value of it has been affected by the downturn in real estate. But I do have the rental roll:



7th unit became vacant this month, it was renting for $625. The unit renting for $425 is the only 1 BR in the complex, the rest are 2BR and most have 2Bath. The unit renting for $450 is the one with the tenant that has been there for 14 years, it is a 2BR. It is 1 physical building but it has 3 different legal addresses. It is technically considered a duplex, triplex, and duplex and that is why we were able to aquire the property with conventional loans.

We have a single family home in Mount Vernon, Washington that we purchased for $220k brand new around December of '05. It is currently renting for $1150.

We also have a single family home in Maricopa, Arizona that we purchased for $235k brand new around the same time. It is currently renting for $895 with the same original retired tenants.

I imagine the single family homes have gone down a decent amount in value since then because of the state of real estate now (especially in Arizona).

Thanks for looking over these numbers,


I would put the apartment building on sale for full market value (395k) using a flat fee listing agent (total fee on a residential property about $500, will be a bit higher for 7 units). That way you won’t have to pay full commissions to that selling realtor, but will get it exposed on MLS.

One of the problems you’re going to have is dealing with the cost s of the sale, including taxes, closing costs and if the buyer is represented by a realtor as well (they’ll want at least 3%). The other issue is that the buyer will have to come up with about $90k if they get an 80% LTV loan for purchase, seeing as to how the days of 100% and 95% financing for investment properties are gone.

The buyer will probably be looking at the following (I made some assumptions on taxes and insurance):

Purchase price $394,000
Down Payment % 20%
Down Payment $78,800
Loan Origination Fee % 1%
Closing costs $8,915
Seller Contribution to Closing Costs 0%

Annual Taxes $4,000 (this is probably low due the fact that you have several buildings)
Interest Rate 8.00%
Annual Insurance $1,000 (this is probably low due the fact that you have several buildings)

Monthly Expenses
Insurance $83
Taxes $333
Principal & Interest $2,193


I know the buyers net income will be less than $1,341 because of the fact that you have several buildings and somebody has to manage them. Adjust the number to what you know they are to see what the buyer will be looking at.

Assuming that your taxes are $4,000 per year, that you have to pay only 3% for a buyers agent, and that your loan payoffs is $374k, your would have about $3k left over to use for concessions to the buyer. I would that $3k as a rent credit for the vacant unit.

Not a good situation for a seasoned investor, so you’ll have to target another newbie to take the load off your hands.

The other option is what you initially brought up, paying down the second liens. Or raising the rents. the guy that has been there for 14 years needs to go. He is preventing you from maximizing your income.

I would sell the others as well or increase the rents to at least what the mortgages are. Hopefully the values are still at least what you paid for them.

I’m stationed near Mt Vernon, WA. I’ve got friends there now who are looking to sell. They aren’t calculating their potential profits. They’re calculating how much they’re going to lose to unload their houses. What made you and your partner get into these investments at these prices? The purchase prices you listed are astronomically high for the rent you’re receiving. I’ve posted this about western WA before. The prices are so high that you can rent homes for much cheaper than the mortgage payments. A good deal for the renters who can get more house than they should for their money; a horrible deal for the homeowners. None of your listed deals are anywhere close to where they should be for rentals. It’s no wonder you’re bleeding cash. Throw in any repairs or vacancies and it gets even uglier. Sorry to be so blunt, but if you want to fix your situation, I would unload these and try to do better purchases next time.

Thank you for the extensive reply hassansr. You bring up a lot of good points that we definately need to keep in mind. We are realizing more and more that we should try and get rid of the apartment. I think getting the long term renter out and fixing that unit up (I think it’s the only one without new carpet and paint) and renting it out for full market value would be a good idea either way we go. That has become my first task to take care of. Again, thanks for such a good reply.

Justin, thank you for joining the discussion. We bought the rental houses and the apartment almost at the peak of the real estate boom so that is why we paid such high prices. At the time that was the market value for them. Obviously a lot has changed since then and they aren’t worth that much anymore. Our plan was to have a negative cash flow on them and then sell them after about 5 years and recoup our negative cashflow plus the mountain of equity that we imagined would be there. We aren’t too worried about these investments as we believe eventually things will bounce back and our plan will come to fruition. Now it just looks like it might just take twice as long if not more for that to happen. It’s the apartment that looks bleak even 10 years from now. We were (maybe we still are :biggrin) just a couple of punk kids that got on the bandwagon and thought we could get rich quick so we bought whatever we could. We definately learned our lesson and hopefully we can get this chapter behind us and do it better next time.