When your rehab starts to go over budget...

29 Replies

I bought my first property (duplex) back in June of '18 via the "House Hacking" Method Purchase price was 90k with an ARV of ~130k. My initial Rehab/ repair budget was 15k.

Goal was to get the work done and cash out refi or heloc, pay off rehab debt and to purchase another property by this summer '19 also by house hacking.

I'm currently  in it at 18k with about another 8k of work left. All 18k has been on %0 interest credit cards that start to come due March of 2020.

Total rehab is reaching 26k and Not much room left on the credit cards. Also my ARV isnt where I though it would be, now around 115k.

90k purchase + 26k rehab =116k

I'll essentially be getting back what I put in (fingers crossed), however Im lost on what move to make next and when to make it. 

If I try to refi or heloc now I know my appraisal is going to be low considering the work I still need to do, but I'm having a tough time coming up with the extra 8k to move forward on repairs which is unfortunately pushing me further away from the initial goal using a refi or heloc to pay off the rehab which I've financed on 0% interest cards. 

I know hard money is an option but it's a scary one. I'm also known for taking risks 😆

Any advice from the community is greatly appreciated. 

Just incase you were curious about the numbers:

My mortgage is $750.

Tenant pays $630 + gas, Electric, water and sewer

I pay trash and lawncare 

What do you have left to do for renos?  Can you finish what you started and rent it out leaving any other renos for later once you've built up your cash reserves?  If you'll get $650 for rent and your mortgage is $750 (hopefully including property taxes) PLUS you are living in the home, the extra cash will help.

I know hindsight is wonderful.  It helps to keep track of the budget as you go, so when things start to go over, you can go to plan B and start cutting projects.

@Carlos Vega Just out of curiosity, did you over look a repair or did something cost more then expected.ehy is it so over your estimate?

I kinda sorta was in the same boat with my last property. The utilities were off, and someone stole are the electrical wire(didnt notice). Ended up costing almost 15k extra due to all the dry wall work and rewire.

@Carlos Vega

Dude, you are so close! If you get a good portion/most of your initial capital back it's a win for your first property. You should definitely be strategizing with a mortgage broker in advance of your potential refi. If more credit is not an option currently, you might work some over time, rent out a room in your side of the duplex, pick up a side hustle to increase your income temporarily (deliver pizza?) or perhaps as a last resort borrow money from a trusted friend or family member who would want to help you out. If you do borrow from a friend or family member make paying them back your #1 priority after the refi. You can always pay minimum payments on your credit card until you personal loan is paid off and then aggressively pay down your CC before proceeding any further. 

Originally posted by @Theresa Harris :

What do you have left to do for renos?  Can you finish what you started and rent it out leaving any other renos for later once you've built up your cash reserves?  If you'll get $650 for rent and your mortgage is $750 (hopefully including property taxes) PLUS you are living in the home, the extra cash will help.

I know hindsight is wonderful.  It helps to keep track of the budget as you go, so when things start to go over, you can go to plan B and start cutting projects.

 What I have left to do is exterior repairs that are mainly cosmetic and which my municipality has given me a deadline to complete on top of putting up $500 until repairs are completed.Theses were overlooked as I planned to make these (or not) in small stages over the next few years. My inspector got me on anything he possibly could.

And yes $750 includes propert tax and insurance.

Originally posted by @Bryan Richardson :

@Carlos Vega Just out of curiosity, did you over look a repair or did something cost more then expected.ehy is it so over your estimate?

I kinda sorta was in the same boat with my last property. The utilities were off, and someone stole are the electrical wire(didnt notice). Ended up costing almost 15k extra due to all the dry wall work and rewire.

 I overlooked my inspector and municipality being a complete nightmare and making cosmetic issues a priority over the actual safety and livability of the property. I couldn't even get an occupancy permit without my hardwood floors being refinished or without having my bath tub reglazed.

@Carlos Vega well I bet in future deals you wont do it again. Sometimes you have to pay for knowledge.

Originally posted by @Bryan Richardson :

@Carlos Vega well I bet in future deals you wont do it again. Sometimes you have to pay for knowledge.

 And that's exactly how I look at it 👌

$8000 worth of contractor work remaining? What would it cost for you to do the work? Might be time to bite the bullet and perform as much remaining work as possible.

Originally posted by @Brian Pulaski :

$8000 worth of contractor work remaining? What would it cost for you to do the work? Might be time to bite the bullet and perform as much remaining work as possible.

I've done the majority of the work and will be on the next phase. Windows will be my biggest expense. I'm 8k is worst case. Trying to keep everything around 6k 

Originally posted by @Brian Gerlach :

@Carlos Vega

Dude, you are so close! If you get a good portion/most of your initial capital back it's a win for your first property. You should definitely be strategizing with a mortgage broker in advance of your potential refi. If more credit is not an option currently, you might work some over time, rent out a room in your side of the duplex, pick up a side hustle to increase your income temporarily (deliver pizza?) or perhaps as a last resort borrow money from a trusted friend or family member who would want to help you out. If you do borrow from a friend or family member make paying them back your #1 priority after the refi. You can always pay minimum payments on your credit card until you personal loan is paid off and then aggressively pay down your CC before proceeding any further. 

 Thanks man I appreciate the optimism. Ive been calling banks, networking at my local reia and figuring out what options I have, definitely staying proactive. And yes I've been paying down my cards aggressively, almost 7k down.

Home Depot cc. While it’s not the best deal on  windows you can certainly buy them from the depot and any purchase over $1000 Theyll give you 12 months to pay it off, 24 months if you actually call customer service and request it.

Anytime you meet with an inspector it’s yes sir no sir? Once they smell blood they are sharks in the water.

 Windows Are the absolute last thing you should ever do. Your tenets are paying the utilities so efficiency is not your main concern. If some of the panes are broken then just get them reglazed and don’t replace the entire window.

Also sounds like in your situation you should be cutting the grass as well.

@Brian Pulaski

The answer varies greatly from contractor to contractor and task to task. Every contractor has different overhead.

@Carlos Vega

May I ask which municipality you are dealing with? I have a long history of dealing with University City.

Maybe I can help .

@Carlos Vega So the good news is that you are living there, and hopefully you have a full time job, so you're basically living for free and can save a good portion of your salary to pay off credit cards.

The bad news it's that, as an investment property, theres no way to get out without a significant loss. If you paid cash for the purchase (best case), you can refinance and get a 50% LTV loan pretty easily. That'll pay off the cards and give you a little cash left over to finish and have some reserves.

Because its unfinished, a traditional bank probably wont touch it, but you could, possibly, get a hard money loan.

If your credit is still decent, you could try a personal loan to finish it up, and then try to refinance it when completed. Not many great options, but there are a few creative ways to get it done and get out.

Geez that’s a huge loss and waste of time .. another reason I do buy and hold rentals and not flips . Many many people I know in my area atleast ended up getting their butt kicked in the actual rehab and just happy to break even come sale time . You really gotta buy these at a discount to make money in the end . Biggest mistake is not accurately factoring on enough rehab budget

Originally posted by @Philip Coiro :

@Brian Pulaski

The answer varies greatly from contractor to contractor and task to task. Every contractor has different overhead.

This is true. However assuming the original poster has some abilities he can save that labor money to do it himself. If I had an $8000 quote from a contractor, I would ballpark around $3000-4000 of it would be labor. I just got a quote for replacing windows around $7000. I bought the windows and other misc materials for around $2500. I don't necessarily want to do the work, but $4500 in savings was worth it to me.

Originally posted by @Dennis M. :

Geez that’s a huge loss and waste of time .. another reason I do buy and hold rentals and not flips . Many many people I know in my area atleast ended up getting their butt kicked in the actual rehab and just happy to break even come sale time . You really gotta buy these at a discount to make money in the end . Biggest mistake is not accurately factoring on enough rehab budget

 I'm not selling it anytime soon so I dont see the "huge loss" or "Waste of time"

 @Jason D. :

I'm in it for the long run. I'm not looking for a way out just yet, just looking for a way into my next property by leveraging my current. Probably going to take me a little longer to do that but I'm learning to be patient haha

@Carlos Vega is this property a cash purchase or is it financed?

Originally posted by @Ryan Mertens :

Home Depot cc. While it’s not the best deal on  windows you can certainly buy them from the depot and any purchase over $1000 Theyll give you 12 months to pay it off, 24 months if you actually call customer service and request it.

Anytime you meet with an inspector it’s yes sir no sir? Once they smell blood they are sharks in the water.

 Windows Are the absolute last thing you should ever do. Your tenets are paying the utilities so efficiency is not your main concern. If some of the panes are broken then just get them reglazed and don’t replace the entire window.

Also sounds like in your situation you should be cutting the grass as well.

 Oh I'll be cutting the grass this summer. 

Winter here in the midwest sparred me that cost for the past 6 months. 

Reglazing is an option however each window needs to be reglazed. At 12 panes X8 windows, reglazing nearly 100 panes isnt something I have the time for especially when they're just going to get ripped out anyway. Plus I got my tenant to sign a 2 year lease this month with new windows and landscaping justifying the increase.

Originally posted by @Jason D. :

Financed 4% down with downpayment assistance

@Carlos Vega Congrats on your first property.  Unfortunately as others have said you are going through what most others go through when managing a rehab.  The good news is that it sounds like you are living on one side and you already have a tenant on the other paying for most of your mortgage.   Can you take care of the exterior work yourself to get the city off you and save some money?  Then maybe push the rest back until you have more cash?  Hopefully you have a decent job and can be paying off your credit cards, etc.  The unfortunate part is that you will have spent a lot of time and money working on this to have no equity and you won't get your cash back right away.  The nice part is hopefully you have at least a partially renovated property that will help offset your living expenses and potentially be a nice rental for you whenever you decide to move out.  I'm sure money is tight now and you are stressing, but it's not a total loss.  

Originally posted by @Scott Mclaren :

@Carlos Vega

May I ask which municipality you are dealing with? I have a long history of dealing with University City.

Maybe I can help .

 I'm in Overland Scott. I hear UCity is tough. It's also a nicer area. Overland is a decent area but the expectations of these inspectors is insane. 

@Carlos Vega if its financed at 96%, theres no refinancing to get you out. A refi will get you $85k, but you owe well over $100k.

Sounds like you're going to have to ride this out, slowly pay off the credit cards, and then save up again for another property. My guess is you're a few years away from being able to get to number 2.

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