running a business and need to pay down debt

[Anonymous]

I am attempting to start a business buying, rehabbing and selling houses for profit.  I am in my late 30s.  There is a 'rehab loan' program available that I might use-- it requires a debt- (including the amt. of the home loan (purchase price + rehab cost) and all other debts) to income level of 45%.  I have a student loan with a $150/month payment.  My consumer debt is about ~$6000 and my credit score is about 750, the loan offers a relatively low interest rate and only 1 or 2 points.

The score is that high because I have paid my bills on time for years, but the debt has been creeping up or remaining the same recently.  I receive offers all the time to consolidate debt as a new credit line.  Assuming I get the 8% interest rate I can pay it off in 3 years at $163/month, and be more disciplined about my finances.  It will require an inquiry, I know, and I have 4 of those in the past year according to Transunion.  The $5000 loan will allow my balances which are at about 30% to go down below 10%, but that will add an inquiry.  So my question is not just about the immediate effect of an additional inquiry vs. taking the balances down to a favorable level (is that recommended?) but also, how much better does it look to pay an installment loan on time, and what is likely to happen if I do?

Also, I would consider these kinds of offers of loan-style credit as possible methods of creative financing of my business, are they less likely to be offered if they see that my debt has gone down considerably?

David M

[Anonymous]

If you need to reduce your DTI, then there is no other solution than to pay (Don't confuse it with UTL) Moving debt around does not decrease your indebtness.. To increase your effectiveness at paying You could transfer a bunch to a no fee, 0% for 12 months kinda card. Your score will definately get you one. And then just throw money at it.

[Anonymous]

I would be scared to start up this kind of business right now- Good Luck

http://phoenixflippers.blogspot.com/

[Anonymous]

It is a very hard industry - especially for the next year.   I would be very careful getting into this type of business.   I would start slow, because you could be up to your neck in bad debt soon.   In addition, your FICO scores will probably go down and it will be more challenging to get out of the situation that you have worked hard to build.   I am not saying it is impossible to make money, but this is very risky at in this market.

[Anonymous]

Well, I am not claiming that moving my debt around will decrease my indebtedness.  What I am asking is if there is a tangible benefit to lower balances (below 10%) of the credit cards being paid off vs. having the debt pertaining to this line of credit.  The issue is how this zero-sum change would affect my credit score and the other issues I raised.

To the other post, yes, there is a bit of a burst housing bubble here.  I am doing my best to monitor how rehabbed properties are selling right now (some of which I've physically seen).  One of the nice things (if there is a nice thing) about a subprime meltdown is that financing is harder to come by in this riskier time and should be easier to come by if and when this turns around.  Lenders manage risk too.

David M

[Anonymous]

yes, I am starting slow, truly; I am spending lots of time reading about (and coursework) all of the aspects related to doing this.  I had made this decision about 7 months ago and at that time thought I would be buying in the late fall.  That is being delayed considerably, however, well into next year at the earliest.  (Not just because of the market, but because it is impossible to get financing now anyway.  And I am doing 5-figure investing; this is an old, revitalizing neighborhood in Pittsburgh.)

I hadn't thought about it lowering my credit rating.  Thanks for the cautionary advice.  If I make all my payments while borrowing mid-5 figures (conceivably under a business entity), how does a rating go down? 

[Anonymous]

Sorry Bud.  I assumed that when you mentioned max DTI of 45% you meant that that was an issue.

[Anonymous]

What city programs are there available - check for those and seriously consider them.

BTW, how's the Golden Triangle looking nowadays?  I went to college there.  Primati's still as wonderful as ever?

Message Edited by Lady_Scarlet on 10-25-2007 07:07 AM

[Anonymous]

And remember the Starker rules:

45 days to declare; 180 to close

Buy Up

Mortgage Up

Spend All the Money

No sense letting Uncle Sam have it

[Anonymous]

Lady Scarlet, can you tell me where on the web I can read the Starker rules?  It looks somewhat familiar, but I want to get complete clarity on it.  I'll look into loans from the URA/CDCs over the next few weeks/months.

I've been in Pittsburgh since 1989, and it's a pleasant, affordable place.  Don't know when you left, and I don't follow Downtown that closely (I live in Friendship, investing in Lawrenceville where the new Children's Hospital is almost ready) but they cleaned up Downtown some time ago; (for example the Harris Theatre now shows art-house films, lots of coffeehouses, but still has that big-business feel).  I'm not sure how 'clean' it is still but I'm sure it's much better than when I got there.  Nonetheless lots of it still has that greasy-spoon feel which I don't really like, sports bars, yada yada.