Due to significant structural issues, my renovation is over budget and I'm running out of funds. What was a bathroom and kitchen job turned into a major reframing. I need another $25k to complete the project, and I have already been declined by Lightstream and my credit union any advice on what to do?
@Chris Wallace How is your credit? Can you do something called credit card hacking... Search it on the top of the page
Credit cards? Personal loan from Lending Club or Prosper? Family? HELOC?
@Chris Wallace I'm sorry to hear about your difficulty. I'm in the camp of asking friends and family. Other than a HELOC which I assume is unavailable it's probably your your fastest and cheapest option.. Perhaps a hard money loan. Cash advances from credit card should be last resort in my opinion. Best of luck
First thanks so much to everyone for your support and advice.
Unfortunately most of my cards are nearly maxed, so that option is out and my credit score has suffered dearly for it. I am going to try family and the P2P Lending site. While keeping my eye on a HML as a absolute last resort.
@Chris Wallace I would not count on a HML coming to the rescue unless you have significant equity in the deal... most HML do not want to come into a half completed project ( at least I never did)... if this is your back up I would be pinging them right away to make sure your back up is actually a back up and not a wish and a prayer.
@Jay Hinrichs Thanks for the tip.
The property is free and clear, this should be a slam dunk, alas its not. I have been talking to prospective lenders all day. Some of these folks are dense and the computers are doing all the underwriting. One credit union told me they'll lend on non-owner occupied property but not if its for rent or under renovation. Huh? How is it an investment if its not generating a return and I cant work on it to improve its value. SMH....
they are worried about subs not being paid and mechanic's liens showing up after the fact. this is why we never touch half done houses. to much risk on the lenders side with unknowns.. but if its free and clear yoiu should find someone... Its those that have no equity that really have a problem
So I talked to a Hard Money Lender here in town face-to-face yesterday. Very enlightening experience. He said he could do the deal no problem (for him) , but jeez this is some expensive money. Please check my math:
- I need $40k to finish. Pay contractor final invoice 30k, and pay down 10k on CC
- HML minimum loan amount is $100k so even if I draw only the 40K, I'm still paying interest on the whole $100k
- Upfront 5 pt Origination Fee = $5k
- They deduct 6 months interest only payments @ 12% or 1% per month = $6k
That's an $11,000 finance charge on $40k!!! which equals 27.5% (11/40 = 0.275 ).
The saga continues....
Chris, @Jay Hinrichs is correct that your situation has more inherent risk to a lender than a new loan but it could be a good fit for an investor who has been contemplating becoming a lender if there is still enough equity in the house to cover all the loans (and potential liens) against it. The small amount you need could help convince an inexperienced lender to do the deal. The lender might be someone who is familiar with real estate investing and has accumulated some capital that is not deployed at the moment. It could be someone with an interest in real estate who has not yet done a deal themselves. Are there any REIAs in your area? Do you attend meetings? REIA meetings are an excellent place to find this type of person. There are many negatives on this deal--I would advise you to be honest about your situation. If a potential lender discovers things that you have not disclosed up front the odds of convincing them to lend will fall greatly.
@Chris Wallace if you do secure a loan for $40k and use it to satisfy contractor invoices and pay off your CC, will you still have reserves to complete the rehab? Thanks!
@Chris Wallace its at this point in a rehab that your GC becomes your money partner.
Not sure how your lien laws work.. but I would suspect a lien by the GC is a second position lien and he is screwed.. and like most smaller GC's he probably did not follow the lien right notifications correctly either.
so for both of you to get out of dodge you have him finish the project for you and you give him a NICE chunk of equity to do so.. make it worth his while.. forget about equating this to a % interest rate your not in a position to negotiate or dictate those types of terms.
Now in our fair state mechanics liens properly files are super liens and come in front of the loans.. so contractors in our state have some very good chances of getting paid.. and lenders usually pay them off then come after the owner on the PG on the loan :) been there done that one
Hard money is always expensive. Take the money and look at this as a learning experience, like paying for a college class.
Chris Wallace whatever lender or partner deciding to come into this deal will be cleaning up a mess.
It's not about what it is worth to YOU it is about what the risk is worth to THEM. They do not need the money but you do or adverse consequences might happen impacting you greatly. People with lots of money do what works for them and not the other way around.
Even if you made no money but came out whole with experience for the next one would it be worth it?
The upside has to make sense for the potential lender/ investor. If it's a large outlay for a smaller return with lot's of " this can't fail " type stuff coming from the owner it's generally a no go.
No legal advice given.
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