I have a single family home in Echo Park (Los Angeles, CA 90026) that I was gifted and is owned outright. The property is not habitable because it needs a full make-over, including foundation, roofing, electrical, plumbing, interior, exterior etc. I have received proposals to complete the work in the 200-220k range.
Comparable properties in the area, that are in good repair, are selling for 850k+. I have received cash offers for my property in the 380-400k range, as an example.
I also have debt from student loans and revolving credit, to the tune of 80k. I don't have sufficient cash for a down payment. However, I have 5 years working at my current job and a good salary.
Are there any loan options I could take out against the property that would enable me to both rehabilitate the property (200-220k) and pay off my debt (80k) at the same time? The reason I would need to pay off my personal debt at the same time I take out the loan (instead of after the flip) is to be able to afford payment on the loan itself. The debt has me spread to thin to take on a mortgage without paying off the debt first.
One obvious alternative is to pay off the debt before taking out a loan, but that will take me a few years, and I'm trying to get things started now.
I realize I'm probably a unique (and bad) situation, so thanks in advance for any advice.
Couldn't you just do a HELOC with the house's current value, complete a majority of the repairs, using some of the cash to pay off your student loans and then use your current income to bring the rehab home towards the end, slowly but surely, or at least get it to a point that you have significantly increased the value then cash out to pay off the HELOC and still turn a profit?
Anyone please feel free to correct me if I'm way off on my understanding of HELOC, I am unsure how much the house requiring rehab would affect how much you're able to take out against it.
Is your goal to hold onto the house long term?
@Ulysses L. Is this a home you plan to live in after repairs are completed or would this be an investment property?
@Ulysses L. This is a bit of a catch 22 because conventional renovation loans don't allow for additional cash to be taken out to pay off other debt (over and above repairs), and a standard cash out refinance will need the property to be habitable to qualify for financing. If the roof is leaking and there are foundation issues, you will probably run into problems with regular financing.
Because of your equity, your LTV would be very low, so it's possible a private / hard money loan would work, but the interest rate will be higher. Typically when the LTV is low (and equity is high) it's easier to get a loan despite other obstacles.
@Ulysses L. A refi cash out HML could work. Sounds like there is plenty of equity to allow for this. PM me if you want more info.
Ryan, I sent you a private message. I also responded to private messages I've received, and I'm awaiting more information.
Is there anyone else that can help and provide options?
@Ulysses L. A loan designed for fixing and flipping the property will probably be your best bet. They are shorter term loans with higher rates and points, but it will allow you to get the property fixed and get the maximum value when you sell. The cost of the loan will be minimal compared to the extra equity you'll be able to get by selling based on the numbers you gave.
Thank you, Stephanie. I sent you a private message.
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