I need some advice...

[nybaseball14]

Hello all, I am new to this site and from some of the posts I have read I can see there are some real pro's here. Here is my problem. I have a rental home in North Carolina that I bought 10 months ago, I have rented it out to a possibly long term (life) renter. I bought the home with an 80%- 20% loan with the payments coming to $1340 a month. Rent is at $1100 a month. I am losing $240 a month on this property and I want to create either a zero balance or postitive cash flow. I am not sure how I can achive this. The 20% loan has a balance of $30,000 and I have about $15,000 to play with and I am thinking about refinacing that loan but I don't know to much about refi, points and fees etc... The home was built in 2006 and all it needs is a fence and some sod so after I do that I will increase the rent by $25-$40 a month closening the gap, but that still leaves me in the negative. Does anyone have any ideas that they can share to help me get back to the black??? Thanks for the help. -JC

[HewittREI]

Refinancing might help, but it would depend on how much you purchase the house for and what rate you are getting now.

Did you know that it would be losig money each month before you purcahsed it?

[nybaseball14]

I knew it would be close but I lowered the asking price bc I needed to free up the money for my wedding. I was ok with it though and I still am bc I have no bills as of right now so its ok. But when I buy my own house in a year or two I want it to equal out at least. I could also pay off the second mortgage in full but that would almost clear out my savings account. But that will also bring in at leats $100 a month with the 2nd being done. I dont know....

[Kandrews]

What tyou could do is a Pay Option arm which gives you the choice of four different payments per month. When your Statement comes from the lender you can choose to pay on a 30yr term, a 15yr term, interst only, or less than interst only. Based on your situation from wha tyour paying right now, you could actually save 3-400 doing a pay-option VS. a standard 80/20 Also payoptions are a good way to save money now and put that money aside for better use. I can email you a cash flow sheet if you would like.

[nybaseball14]

Thanks I will look into it....nybaseball14@aol.com

[Paso Dog]

The Pay Option loan can be good or it could be the worst thing that you ever did. I have Pay Option arm loans on some of my properties but you need to be aware that if you are making the minimum payment the money that you think is going into your pocket is actually going to an increased principle on your property. You also need to consider how long will it take for you to recoup the cost of refinancing.
A good lender should be able lay everthing out for you so that an informed decision can be made.

[TJ2007]

Refinancing 'MAY' help, and I never like to talk myself out of a deal, but unless the property value has shot up since you bought 10months ago, or your credit & financial situation has greatly improved, you are probably not going to get much better terms now and any benefit will likely be burnt up by the costs of refinancing.
You might want to save an extra dollar a month now, but you will be eating up more equity which will reduce your profits later or make it harder for you to sell...

This is of course unless your orginal lender just gave you a terrible deal...

[jellyfish]

To make things hard you have $15,000 to play with instead of $30,000? Sigh.. Well I guess if you could find a low closing cost second mortgage it might be possible to save some money there. However, I would say that you might not save any more than if you put that 15k in an internet savings account with 5% interest.

I wouldn't touch interest only loans, or worse, less than interest only loans with a 10 foot pole. But that's just me..

Hope all goes well!

[TJ2007]

Yes unfortunately many people do not understand interest only or flexible payment mortgages...and especially when it is beneficial to take them and how to them correctly.

Which is terrible shame as they no doubt have proven invaluable to creating wealth for many many investors, given help to people in difficult times and given many families a step up on to the property ladder that is 'THE AMERICAN DREAM'

[noobdogs]

those loans should only be used by the financially savvy.

otherwise, 30 year fixed or 5-1 arms are the way to go.