What would you do? Advice on duplex I currently own

10 Replies

Hello all and thanks in advance for anyone taking the time to chime in.  I have a duplex in a desirable area of CT.  2 BR /1 BA down and 1 BR/1BA up.  I've always had an issue renting the upstairs because the bath is tiny and due to roof structure, only a tub no shower.  

Right now I have a super expensive commercial loan on it - 9.9%!  The payoff amount is 151k and the current value is around 269k. There is a pre payment penalty of 4285.

I'm going to do a renovation on it which involves opening up the roof, and adding 1 or 2 more bedroom upstairs.  This will allow me to have a larger bathroom with shower and more rental space upstairs.  This reno will cost around 70k.


After the reno, I could get 1200-1400 for upstairs and 1400-1600 downstairs.  2800/month conservatively. 

So my question is, should I raise capital just for the renovation OR raise enough for renovation and paying off the loan?  Any other ideas would be very welcome as well.

Thank you!!

I would try and get out of that expensive loan as soon as you can.

What do you mean by "raise capital" private money, friends and family? What terms for this capital raised?

It might be best to refinance after you have the renovations completed.

@Molly Mayeux , I know HML that will lend at 6% on a property like that probably at 70%, not 9.9%. Which will net you some money even after paying the prepayment penalty. Additionally, I'd call a bunch of local banks to find something even better. I think getting out of that loan should be your top priority. Is it renting now?

thank you all.  the property is owned in a llc and it is a commercial loan.  my credit is good - 700. but been having some issue finding better rates with being llc owned and commercial.

Originally posted by @John Underwood :

I would try and get out of that expensive loan as soon as you can.

What do you mean by "raise capital" private money, friends and family? What terms for this capital raised?

It might be best to refinance after you have the renovations completed.

Hi @Molly Mayeux .  I don't think this is a 'raise capital' scenario.  You already own the asset and unless you're willing to give up a portion of its equity then what's the purpose to raise capital?

A few items to address:

  • Loan 9.9%: I'd get out of this loan pronto!  You have enough equity for more conventional investor financing.  Typically you need 25-40% equity.
  • Capital:  If you need capital then here are a few options to consider.
    • Refi Cash-out:  You can typically take 70-75% of your assets out as cash, minus whatever debt there is.  For your example: $269k x .70% = $188k in a new loan.  $183k - $151k = $37.3k cash you would get.  It locks you back into a 30y note on hopefully a much lower rate!
    • HELOC: You can also get a line of credit against the house. Higher rates than a traditional loan but often lower than HML. It's a credit card, cash only when you actually need to purchase something. You could even use the HELOC to renovate and then refi afterwards, if there's enough equity you could even take cash out.
Originally posted by @Molly Mayeux :

Hello all and thanks in advance for anyone taking the time to chime in.  I have a duplex in a desirable area of CT.  2 BR /1 BA down and 1 BR/1BA up.  I've always had an issue renting the upstairs because the bath is tiny and due to roof structure, only a tub no shower.  

Right now I have a super expensive commercial loan on it - 9.9%!  The payoff amount is 151k and the current value is around 269k. There is a pre payment penalty of 4285.

I'm going to do a renovation on it which involves opening up the roof, and adding 1 or 2 more bedroom upstairs.  This will allow me to have a larger bathroom with shower and more rental space upstairs.  This reno will cost around 70k.


After the reno, I could get 1200-1400 for upstairs and 1400-1600 downstairs.  2800/month conservatively. 

So my question is, should I raise capital just for the renovation OR raise enough for renovation and paying off the loan?  Any other ideas would be very welcome as well.

Thank you!!

Hey Molly

After dumping 70K into the property, what's it going to be worth?  If it's 269K and you've got equity, why not do a hard money deal at close to the interest rate you've got right now and finance the renovation and then refinance into a long term loan that makes more sense.  Rates on portfolio loans are going in the 6's right now with no income verification.

Just a thought

Stephanie

@Molly Mayeux - doing the loan in an LLC name and it being commercial along with a 700 credit score... you should be able to get a much better rate than that. The lenders I work with don't require tax returns or W2s and even they could do that loan several points lower. As far as the math, I would compare the rent you could get to the rent you get now (annually not monthly). Since you said it's hard to rent I'm guessing you have long stretches of vacancy when tenants move out. So seeing what you bring in per year for that unit divided by 12 would tell you what you're really getting and give you a fair comparison (assuming it would rent well after the renovations).