Rehab Financing Strategy Help

[Carl Rowles]

We bought this rental in the fall and had it rented. Pipes froze in December and it flooded. We are about to put in $15-$20k of our own money into it, beyond what insurance covered and I need help deciding how we should finance it. 

Opt 1) utilizing our savings in the brokerage account and emergency fund and pay for it all up front.  (We have ~$17k in a brokerage account that was going to be part of downpayment on next investment property, plus we have about $12k in an emergency fund)

Opt 2) Personal loan finance, 9.99%. Based on the CU's loan calculator, we can finance that over 60 months for a $320 payment. 

If we rent the unit at $1,425, I have an estimated monthly cashflow of $302 (rent at $1450, cashflow is $325) I DO include vacancy, repairs, and cap exp in my Box2 Expenses. (Previous rent was $1,300 but we're about to put in a brand new kitchen from the studs, new flooring throughout the house, new furance, adding A/C, etc).

So do we just pay for it all upfront and mostly drain all of our savings, or do I let the rent pay for it and utilize our other savings to get a second property this spring/summer to increase our cashflow? (As I write all of that, I think Option 2 would be better, but throwing it out there for those with more experience).

[Bill Hampton]

@Carl Rowles

I recommend a HELOC or Heloan on your primary residence or the rental if you have enough equity in either. The interest rate on a HELOC or Heloan may be better than the personal loan.

Otherwise, I recommend option two, using a personal loan. Don't use your emergency fund. 

Whichever loan that you decide to use, the interest will be tax deductible due to interest tracing rules. Make sure that your tax accountant understands this. 

Good luck.