What are my financing options for rehab costs?

Question

Looking for some advice....I just bought a new rental property, as a 50% partner using cash. Need to finance the rehab costs - I tried to take out a HELOC on a different rental property that I have equity in. However, it was denied because the property is in the name of my LLC so the bank could not do a personal/residential loan on it. What is the best way to get that equity? I can't refinance the new property to get the cash because I am only 50% owner. Should I just take out a standard commercial loan to pay for the improvements? Any advice is appreciated. Thanks!

Blair Poelman · Answer

You could bring in another partner and do a JV and rev share on the sale.  I believe your dilemma is more common than most people realize - you put out 10 offers expecting to get 2 that you can easily cover the costs on, but next thing you know you get 4 and you have to scramble.

I've come in to a handful of deals this way - I can easily cover rehab costs if it means i'm going to get a split on proceeds of a sale.

MJ Meneley · Answer

Thanks Brian... that's what I was getting at I guess. Good to know that there are banks that will do that. This surprised me so I'm hoping to find a better partner for future deals. Thanks! Side note - I used to live in WPB. Love that place. Thanks!

MJ Meneley · Answer

Theo, thanks for the feedback. (Kind of a no-brainer right?? Know where the money's coming from before you start!) Next time I will for sure...I had already started the HELOC process before the purchase and knew I have a lot of equity in the other property so didn't think it would be a problem. Never thought about the LLC ownership causing a wrinkle. Lesson learned...Thanks!

Theo Hicks · Answer

Hi MJ,

You've gotten some great advice on this thread.

Here's some high-level advice: for your next deal, make sure you know how you are going to cover the rehab costs before you close. There are loan options that include all or a portion of the capex costs. Just something to keep in mind.

Eric Veronica · Answer

Did you ask the local lender if they would approve the HELOC if you quit claim the property into your name?

Caleb Jordan · Answer

You and the partner could form an LLC and try to do a cash out refi. Some Hard money lenders do with no pays stubs needed etc.

Brian Garrett · Answer

Call more banks and credit unions until you find one who will do the HELOC on your investment property.

Otherwise your only other options are cash or to find another private money partner to bring into the deal.

Theo Hicks · Answer

@MJ Meneley Exactly, lesson learned! And that's all that matter: analyzing what we are doing now and what we can do to improve in the future.

What are my financing options for rehab costs?

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