Refinance Rental Property/LOC

I purchased this rental property in October 2005. The purchase price was $163k (the appraised value was $172k). My first mortgage at 80% is interest only @6.50% fixed. The second mortgage is at 10% $16k P&I @12.5% (down was 10%; this was to avoid PMI.) My credit score is 660-680 range. The property is bringing in $1,175/month in rent. My two monthly mortgages are $1,118. The area of the property is appreciating at about 14% per year.

Two questions:

  1. Can I refinance the mortgages to combine both in one, bring my monthly payment down, hence increasing my cash flow?

  2. I have about $30k in equity of this rental property. Can I get LOC on it and use that money to buy other properties (ie, how can I leverage this rental property for more investments)?


The area where you may have trouble is in seasoning. What that means is that you have only owned the property for 4 months, so getting a refianance that will be comparable to what you have now is not going to be easy. Your rate will most likely be higher on the first, but lower on the second. Most place are going to want you to have 6 months ownership ( or “seasoning”) before they will touch the loan. You definetlety need to do something as soon as you can though. The cash flow on this property is not so hot.

Just doing some rough math…forget about the seaoning issues for a moment.

current mortgages=146400

Appraised value =172000

LTV= 85%

Even if you were to refinance you will still have a small amont (5%) $8800 that you would need to bring to close or get a 2nd mortgage for.

Plus you will eat up some of your equity in closing costs.

The rate that you have on your first mortgage is great for a N/O/O property and the second is a little high. However, since it is on a small loan amount rate decreases will not have a major impact. maybe $30-40 max.

Just typin’ out loud :smiley:


I will have the property re-appraised in a few months (“seasoned.”) If the value comes out to be at least $183k, I can combine the mortgages and avoid PMI. Closing cost is a consideration and I’ll have to run my numbers to see if refinancing makes sense.

Do you know if I can get LOC on this property? I want to leverage this property to buy another one (LOC on it is the only way I can think of.)


I realize that the cash flow is not that attractive. I’m holding the property for appreciation and would probably sell it as soon as my net profit on it hits $20k. The renter loves the property and the area it’s in. He wants to buy it

You are also in lending. Can I get LOC on this property?


If you get 183K in value and refi you will be at 80%. Are you looking for a heloc to go to 90%??


I’m exploring the possibilities. I’m trying to figure out how to use this asset to generate further RE investment.

I’m thinking to refinance when the value has exceeded $183k. If I get 10% heloc, I’ll get my down payment back; increase it another 5% and I get my all closing cost back +. As you can see, I tied my money in it and now feel frustrated for not being able to get it back fast enough.

I’m looking to get cash back for reinvestment; otherwise, I have to sit on this property for maybe another year before I can sell it and get the money to reinvest. Meanwhile, all this precious time is lost. With this experience, I have discovered that rentals are two slow-paced. I’m now looking for fixer-upper flips, which is a lot faster turn over of funds.


Just be careful how high you take the LOC on your primary? residence. If you get in trouble on a rental or a rehab you don’t want them coming after your home.

Seasoning issues shouldn’t be your main concern on 1st mortgages and there are several lenders that can do no seasoning 2nds/helocs. Why a heloc instead of a fixed 2nd mortgage?

The score range of 660-680 is a big range, specially for 2nd mortgages because those #s fall right on the borderlines.

Income/assests is also important to know?

Why not do 100% financing on your new purchases? Seller assistance on closing costs can minimize what you have to bring in.

It appears your trying to get about 10% cash out of the equity on this one. That’s going to be about $18K? Take out closing costs and you’re left with around $15,000.

I recommend speaking to a mortgage consultant to go over all your options.

What price ranges were you looking to purchase in?

I agree that to continue investing you may just want to look at 100% financing on your next investment. Waiting to get to 80% then adding a 2nd or LOC to pull out cash is an option but like you said may take awhile. What about selling to your tenant now? Offer it to him with the 20k you need to make included.
When you purchase to flip there are some very creative and excellent loan products available. A broker can help you go over all your options and find the best solution for reaching your goals.

Ben or Premier,

Do either of you know of a lender that will do 100% NOO financing with negative operating income?