Best Way To Obtain Cash For Rental Repairs

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Best Way To Obtain Cash For Rental Repairs

Micah Roy
Rental Property Investor · Greer, SC · Member since 2022 · 5 posts · 1 vote

The time has come for some exterior repairs on my rental property. We have owned the property since 2006. Lived in it for 8 years and have rented it out for the last 7. Interior is up to par with the market minus some minor things that we will be doing. My concern is the exterior. Front porch needs replaced (quoted $11k-$14k). Siding is the old LP and at least two side of the house will need to be redone then repainted. I’m waiting on a few final quotes but I’m estimating we’ll be in the range of $25k-$35k when all done. My question is this: What is the best way to obtain this money to make the repairs? Here are my options. If I’m missing something feel free to add.

Private money (potentially family members).

Loan.

Refi.

Credit card.

I’m leaning towards a refi but I’m balking cause we bought the house $150k at 4.25%, owe about 90k. Home is valued around $340k (same models going for this in the neighborhood). Mortgage payment (principal, interest, insurance and taxes) is $1,050 and the rent payment is $1900. Would love to have the house payed off and this property funds one of the next ones but if I refi I start over on the interest and my rates would be higher. 

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Micheal Briscoe
Edmond, OK · Member since 2012 · 53 posts · 63 votes
4y

Would be a good idea to budget ahead of time and set some funds back.  

In your situation, I would look into a HELOC. Either on your primary or on your rental. Rental HELOCs are hard to come by, but they are out there. I can almost guarantee they'll have better terms and structure vs the options you listed. Especially over a refi at todays rates.

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  • Richard F.
    Honolulu, HI · Member since 2008 · 3k+ posts · 2k+ votes
    4y
    Aloha,

    It's a little late now, but the BEST way to come up with the money is to set up a separate savings (or reserve) account and put money into it every month so that when the time comes for work that you KNOW will need to be done, you just write a check.

    Every property has the same basic elements (roof, exterior surfaces, sewer and supply piping, etc), and each element has an "expected" life (google "construction useful life"). When you acquire a property, a little due diligence and visual inspection will reveal an estimated "remaining" life for each element. Plan accordingly...
    2Reply
  • Micheal Briscoe
    Edmond, OK · Member since 2012 · 53 posts · 63 votes
    4y

    Would be a good idea to budget ahead of time and set some funds back.  

    In your situation, I would look into a HELOC. Either on your primary or on your rental. Rental HELOCs are hard to come by, but they are out there. I can almost guarantee they'll have better terms and structure vs the options you listed. Especially over a refi at todays rates.

    2Reply
  • Ron Brady
    Rental Property Investor · Burlington County, NJ · Member since 2019 · 540 posts · 771 votes
    4y

    HELOC

    0Reply
  • Nathan GesnerBusiness Member
    Moderator
    Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
    4y
    Quote from @Micah Roy:

    The best option hasn't changed: save the money.

    Go sell some items. Cut spending. Increase earnings. Put aside as much as you can over the next year and save up. Borrowing money is never the "best" option.


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    2Reply
  • Tom Malloy
    Investor · Austin, TX · Member since 2019 · 22 posts · 16 votes
    4y
    Quote from @Micheal Briscoe:

    Would be a good idea to budget ahead of time and set some funds back.  

    In your situation, I would look into a HELOC. Either on your primary or on your rental. Rental HELOCs are hard to come by, but they are out there. I can almost guarantee they'll have better terms and structure vs the options you listed. Especially over a refi at todays rates.

    I’m in the process of getting a HELOC on an investment property from Quorum. I called about 20 other credit unions and banks and most won’t do the HELOC on an investment property. Quorum allowed the most LTV percentage too. With the HELOC you keep your current mortgage (that is paying down a lot more principal than a Refi) and you can pay off the HELOC as quickly as you want. You also get charged only interest for the first 2 years so your payment isn’t that high. 
    2Reply
  • Micah Roy
    OP
    Rental Property Investor · Greer, SC · Member since 2022 · 5 posts · 1 vote
    4y

    Thank you all for your responses. I am aware the best option is to not have to borrow (in most cases) but due to a couple unforeseen instances with previous tenants we have had to dip pretty hard into the savings. Let’s just say learning to swim in the landlord pool we got thrown in instead of wading. Working on building that cushion back up but in the meantime gotta keep the house up to standard. Been interesting because when we originally purchased the house I believe it was a flip. This has since aligned all of the life of the major things up with each other it feels so we have been repairing or replacing what was worst/needed it the most. This rotation of tenants it just so happens to be the front porch and siding.

    As far as I understand the HELOC would just give me a line of credit to use on whatever I would need. So if I couldn't get one on the rental, I could try on the primary and still use the funds for the rental. Is this correct? Obviously I would prefer to keep my primary away from the rental as far as funding goes but if I had too, that's an option.


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  • Aqeelah M.
    Rental Property Investor · Wichita, KS · Member since 2019 · 48 posts · 12 votes
    4y

    Find a company that does the repairs you need and ask them if they offer to finance, you can pay off the cost over several months (plus, interest, of course). I did this for my new electrical wiring and renovation project through Service Finance (who your contractor works with may be different). There were several plumbing companies that offered to finance but the guy I specifically wanted to do the work with did not offer that service. It's my belief (not a fact) that bigger companies offer these types of benefits. 

    0Reply
  • Theresa HarrisPro Member
    Member since 2019 · 15k+ posts · 11k+ votes
    4y

    I wouldn't do a refinance as the cost of that relative to how much you will need makes the 'interest' on it really high. Can you get a line of credit or do a HELOC? Ideally as others said, you have money set aside for larger planned repairs like this.

    Less ideal is refinancing, using what you need for the renos and putting the rest towards the down payment for another rental provided you have enough room in your debt to income ratio.  If you refinance run the numbers so you still cash flow on the current rental.

    0Reply
  • Ron Brady
    Rental Property Investor · Burlington County, NJ · Member since 2019 · 540 posts · 771 votes
    4y
    Quote from @Micah Roy:

    As far as I understand the HELOC would just give me a line of credit to use on whatever I would need. So if I couldn't get one on the rental, I could try on the primary and still use the funds for the rental. Is this correct?


    Correct
    0Reply
  • Tom Malloy
    Investor · Austin, TX · Member since 2019 · 22 posts · 16 votes
    4y
    Quote from @Ron Brady:
    Quote from @Micah Roy:

    As far as I understand the HELOC would just give me a line of credit to use on whatever I would need. So if I couldn't get one on the rental, I could try on the primary and still use the funds for the rental. Is this correct?
    Yes. 


    Correct

    0Reply
  • Christopher Abele
    Investor · Toledo, OH · Member since 2020 · 88 posts · 101 votes
    4y

    A couple of things that I'm seeing in your original post:

    1.) Rent is $1,900 but the property is worth $340k? Rent needs to come up. If that's market rent vs. market purchase price then its a bad investment unless you're banking on 0 cashflow and only appreciation. 

    2.) What's you're PITI? I'm throwing mud at the wall, but it looks like you're cashflowing around $300 - $500 / month but not putting that back for your safety net. At that rate you're looking at 4-5 years just to cover your short term expenses with 0 income. That's not sustainable as an investment unless you're speculating that appreciation continues at the current rate.

    All in all, the numbers don't seem to pencil out properly. Have you set your rent grossly under market rent? If so - you'll need to run the numbers with an increase. If not, it might be time to sell this alligator while the market is up. (Take out a loan to fix it and get it on the market.)

    0Reply
  • Micheal Briscoe
    Edmond, OK · Member since 2012 · 53 posts · 63 votes
    4y

    He’s likey experienced same as I have. I have a couple +1% purchased deals in a hot neighborhood ($1295 @ 122.5k and $1395 @ 113k).  Due to the nature of the market, their values are 205k and 185k now. Rents have only came up to $1350 and $1495.  


    The current return on equity looks poor, but I’m anticipating our market rents to start closing the gap.  And there’s nothing on (or off) the market that justifies cashing out and redeploying. 

    1Reply
  • Eliott Elias
    Investor · Austin, TX · Member since 2021 · 9k+ posts · 5k+ votes
    4y

    Don’t spend your rent 

    0Reply
  • Micah Roy
    OP
    Rental Property Investor · Greer, SC · Member since 2022 · 5 posts · 1 vote
    3y

    Figured I should update this post as to what I ended up doing. Regardless of how people will feel I believe it's good to put it all out on the table so people can learn from others, be it through their mistakes and what not to do, or just to give others' ideas. Been meaning to do this for a while but my full-time job has recently required much more time.

    So, after much debate and time researching different types of options for money (thank you all for your input) an idea I hadn't thought of before popped into my head. I have always been in the mindset of long-term goals. Set them in place, automate them and move to the next investment. This includes my 401K. I have been with my current employer for a very long time and have invested in my 401K pretty heavily. I have it split up, so a portion goes into the company's private stock and a portion goes into the market in forms of index funds. Never really thought about drawing a personal loan on this as the market was doing well and my employer stock has been doing amazing. Recently as the stock market has been dropping, I watched my 401K account go from very good returns to heavy reductions (sometimes freezing). Looking at the performance of each I noticed my employer stock was still growing but was supporting the decline of the stock market.

    Digging more into the investment plan I realized I could take a loan against myself (meaning I pay myself back with interest, higher than the current market rate return also). The money borrowed is actually drawn from the underperforming index section of my 401K and not from my employer stock. This essentially would make me more money than I am making from the stock market currently underperforming while still getting the large returns from the employer stock.

    This is the route I took to make the repairs for my rental property. I even drew out more than needed to set aside a "reserve" for future emergency repairs/vacancy... like I should have done to begin with and so many of you reminded me of that in your responses to my post. I now have a reserve and planning on saving the rent I am receiving to fund another investment.

    Thank you all for your feedback. Look forward to soaking up more knowledge as I continue with more investment opportunities in the near future.

    1Reply
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