How do you pay for Rehab expenses?

Question

Hello,

I was curious to know how investors pay for expenses on their rentals such as rehab expenses. Is credit card the preferred method? If so, what cards would you recommend? I looked online and saw that business credit cards were the ones to get but would like to get additional input on this.

Thanks!

Eliott Elias · Answer

Credit cards never made anyone rich. Only reason I’d say to use one is to delay your payment to the bank of you don’t have the cash in hand

Sabrina Sanchez · Answer

Aside from everything esle everyone said there are also loans (203k) that allow you to combine the cost of repairs and the purchase of a home - but they are not easy! I would agree that the first renovations you do will likely come out of pocket whether its through a credit card or savings. I would join a local landlord association after seeing if they get discounts at places like home depot and there's always the option to partner with someone too!

Greg Henderson · Answer

Lowes and home depot have a business account option. They're great for multiple projects going at once because you give a PO at checkout and its nicely organized in the online portal. I strictly use a credit card (capital one business) for every other purchase I make for the 2% cash back. I have one for each LLC. That helps keep me organized and its set to auto pay the full balance at the end of the month. I also like the american express card for employees. The app will show their name by each charge. They text me the receipt and I simply attach it to the charge in the app. They have a use beyond over extending. I certainly wouldn't recommend using credit cards for a rehab if you don't have the savings to cover the expense. If you're using them for rehab, what happens if you go over budget and have no more options? Then banks look at your recently trashed credit score and will deny you a loan. That's desperate territory. Get financing first. If you go over budget, use the cards.

Steven Foster Wilson · Answer

Starting out, I used a 0 APR credit card and made sure I got everything finished and refinanced before the time was up. I have also used private money. Once you get the ball rolling though you will not need to do that.

Theresa Harris · Answer

I used my savings for the ones I've done, but they most expensive was under $35K.  Home Depot has something where I think you have 6 months to pay.  I wouldn't use a credit card if there are high interest rates or if you can't pay off the balance in a short period of time.

Ryan Deasy · Answer

@Adam Pervez

i always used hard money! mine will pay 100% of the rehab if the numbers work. happy to share more.

Sebastian Hernandez · Answer

If you are referring to smaller cosmetic items or regular maintenance and repairs, most people use cash or some type of credit card like lowe's or homedepot's. For much larger projects and renovations, depending of where you are in the journey, people do cash, hard money loans, 203k loans and one that is not talked about often is financing through your contractor. A lot of remodeling companies offer financing.

Randy Gutierrez · Answer

Your first few rehabs will usually come out of pocket, after that depending on your goals, the rental income from your portfolio will cover it, just have to get the snowball big enough.

Frank Avallone II · Answer

Hi @Adam Pervez, depends on the size of the rehab. If it is smaller projects I will usually use a credit card just to take advantage of points haha, but knowing I have the cash on hand in order to avoid paying any interest.

If you do not have the cash on hand and it is for something bigger there is a few other options you can look into. A lot of times if you have owned the property for a while you can tap into equity of the house to pay for project. This would be in the form of a cash out refinance or a heloc/heloan.

If this is for a house that you did not buy yet and you anticipate rehab costs, then you can look into obtaining a renovation loan so that you can finance these costs into the purchase.

How do you pay for Rehab expenses?

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