Investor Needs Advice: Renters Trashed Property Repairs to Cost $10K

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Investor Needs Advice: Renters Trashed Property Repairs to Cost $10K

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Lender · Salt Lake City, UT · Member since 2012 · 714 posts · 169 votes

I have a real estate investor friend who needs advice. He has an SFR rental property and discovered after the most recent tenants vacated, that the property was nearly destroyed. Bid for repairs came back at $10K.

Forget about legal recourse for now. This will take time and money and he is already pursuing this option.

He has a conventional loan on it for $150K and it appraised last year for $192K. He's at 78% loan to value, so the bank won't do a HELOC for $10K and no hard money lender will do a 2nd mortgage because the Loan to Value is too high. He has no cash on hand for the repairs, and no other investment properties to use as collateral to get cash out.

He needs $10K for repairs to get it rented again. That's his top priority for now. I suggested he get a Home Depot credit card and put most of what he can on that. What else could he do to get the $10K he needs to get the property back in shape so he can rent it? Any creative ideas you would suggest??

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John H.
Massachusetts, MA · Member since 2009 · 144 posts · 31 votes
14y

Can you explain better what the house needs. $10k sounds high unless the tenant removed plumbing, wiring and put holes in the roof.

I bet he can get it rentable for cheaper if he needs to, and from the sounds of it, he needs to.

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  • Rob K.
    Investor · Southeast, MI · Member since 2012 · 2k+ posts · 1k+ votes
    14y

    Do banks still do personal loans? Other idea would be a cash advance on a credit card. The fees are high, but it sounds like there are few options.

    I don't want to beat up on your friend here, but this is a prime example of why you need an emergency fund. $10,000 would be the minimum. Anytime I've had less than $20,000 in the bank, I didn't sleep very good. Problems like this will come up and as an investor, you need to have some cash on hand.

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  • Scott W.
    Real Estate Investor · chicago, IL · Member since 2012 · 1k+ posts · 231 votes
    14y

    good idea on the HD credit card. max that out at 0% interest for 12 months; do the same for lowes. no idea how he'll get the $ for labor. hopefully, he's handy & can do sweat equity. live at the place until rented out doing work b4/after work, weekends, take vacay.

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  • Scott W.
    Real Estate Investor · chicago, IL · Member since 2012 · 1k+ posts · 231 votes
    14y

    antoher option is a 401k loan thru his day job, if he has one. you can borrow up to 50% or $50k from it.

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  • Account Closed
    OP
    Lender · Salt Lake City, UT · Member since 2012 · 714 posts · 169 votes
    14y

    All excellent replies. Thank you !!!

    Would a plumber take a credit card? I know an attorney will but not sure about a plumber.

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  • Rob K.
    Investor · Southeast, MI · Member since 2012 · 2k+ posts · 1k+ votes
    14y

    Corey Dutton A large polumbing company will take credit cards, but their prices will be higher due to their overhead - advertising, employees, credit card juice, etc. A small time plumber will be cheaper, but probably won't take credit cards. Although, my furnace guy is a one man show and he takes credit cards on his smart phone. So you might be able to find one.

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  • Kyle J.
    Rental Property Investor · Northern, CA · Member since 2012 · 5k+ posts · 5k+ votes
    14y

    All good replies so far.

    If he has no savings and doesn't have any friends/family he can borrow from, I would also suggest trying to finance it on a credit card. As an example, I just got an offer from Discover Card in the mail yesterday for a personal loan up to $25,000 at a rate of 7.99%. Didn't look into it at all, but those options are apparently out there.

    Additionally, if the 10k bid is for someone else to do the work, he could probably cut that in half if he can do the work (or at least some of it) himself. Assuming he has the required skill and time.

    In the future, tell him to SAVE some of his monthly income for unexpected expenses such as this!

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  • Jon Holdman
    Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
    14y

    Does he get pre-approved credit card offers? Sign up for some of those.

    Does he get balance transfer and purchase check offers from existing credit cards? You can just write yourself a check from these and deposit it in your bank account.

    How about a HELOC on his primary? I don't actually think this is a great idea because you're putting your living space at risk over an investment property.

    401k loan. If he has a 401k account and still works and the company, its may be possible to get a loan from this. If so, the interest rate is low and your 401k gets the interest. And these loans happen quickly and with no credit approval.

    Auto pawn. Can he "pawn" a car? For that matter, how about selling a car or something else? Or pawning TVs or other big items?

    To pay people who don't directly take credit cards, use paypal or square. Anyone can sign up for paypal. Haven't used square from the vendor side, but I've seen the ads and see more and more vendors using this service. Appears to be very quick and easy to sign up. Chase is also advertising their "quick pay" service that lets you pay anyone.

    More radical suggestions:

    Sell the property. This situation really illustrates the danger of owning rental properties and having "no cash on hand for the repairs". Your friend has put himself in an incredibly perilous situation and now the chickens are coming home to roost. Even if he could get $170K for it in its damaged state, he could still pay off the loan and escape with no cash out of pocket.

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  • Joel OwensBusiness Member
    Moderator
    Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
    14y

    Just thinking out loud.

    Get the HD card for 10k limit.Buy materials directly at say cost is 4k then offer to pay if contractor wanted labor at 2k offer to buy them 4k in materials they can use for other jobs instead of paying them cash they get twice the value in materials for bartering the labor.

    You could even mix a small labor cash amount and then material credit together if they insisted on some cash.

    Huge companies might not do this but I can see a smaller outfit going for it.Never have done this just thinking out loud.You can then pay down the credit card over time with your new tenants rents.

    Also before employing this strategy do not go by the first estimate for rehab.Get multiple bids to see what the average is and materials and labor quoted.Make sure costs is all in.

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  • John H.
    Massachusetts, MA · Member since 2009 · 144 posts · 31 votes
    14y

    Can you explain better what the house needs. $10k sounds high unless the tenant removed plumbing, wiring and put holes in the roof.

    I bet he can get it rentable for cheaper if he needs to, and from the sounds of it, he needs to.

    2Reply
  • Trey Leigh
    Real Estate Investor · Uvalde, TX · Member since 2012 · 74 posts · 6 votes
    14y

    How about rent it out to somebody at a reduced rent in exchange that do the work and he buys supplies? Would have to someone with the necessary skills of course.

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  • Account Closed
    OP
    Lender · Salt Lake City, UT · Member since 2012 · 714 posts · 169 votes
    14y

    All great replies. Wow I knew I could count on your guys and gals for some excellent input. Jon Holdman I also suggested that he put the property up for sale. I also like your idea of pawning some stuff he owns. Didn't think about that....

    Definitely a lesson for rental property ownership at its finest!

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  • Ann Bellamy
    Lender · Tyngsboro, MA · Member since 2009 · 3k+ posts · 2k+ votes
    14y

    Also try Prosper.com and LendingClub.com

    Last I knew, they were still doing unsecured personal loans

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  • Joe Bertolino
    Investor · El Dorado Hills, CA · Member since 2012 · 1k+ posts · 1k+ votes
    14y

    What type or damage? Could it be an insurance claim? Did the renter have renters insurance you could go after?

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  • Silvio Brigliadoro
    Riverside, CA · Member since 2010 · 92 posts · 28 votes
    14y

    Not sure if anyone mentioned raising some private funds from family and friends and secure the note with the property. it sounds like an expensive lesson, may be a good idea for him to add a provision in the lease with the future tenants for routine inspections...

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  • Grant S.
    Investor · Wichita, KS · Member since 2012 · 20 posts · 1 vote
    14y

    In reference to the "small plumber taking a credit card" issue, PayPal is an option. If you find a small plumber you like who doesn't accept credit cards, you can have them set up a PayPal account and shoot it over to them that way.

    Also, there are a lot of SmartPhone apps available today that enable small businesses to accept credit cards. GoPayment is one. With services like this, there is really no reason any small biz shouldn't be able to accept credit card payments.

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  • Account Closed
    OP
    Lender · Salt Lake City, UT · Member since 2012 · 714 posts · 169 votes
    14y

    Thanks for all of the great comments. I've asked my real estate investor friend to join this forum. Maybe when he sees how much feedback this discussion got (and great feedback at that !) maybe he'll be inclined to become a member! Thanks again everyone.

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  • Chris Masons
    Investor · Union, NJ · Member since 2011 · 838 posts · 295 votes
    14y

    I didn't see it mentoned yet but with 10k in damages why isn't yoru insurance company involved? I haev seen pretty high deductables but never 10k.

    I generally run at high deductables (2,500) but even at that it would only be 2,500 out of pocket.

    Is it that he doesn't want to put in a claim???

    regards,
    Chris

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    OP
    Lender · Salt Lake City, UT · Member since 2012 · 714 posts · 169 votes
    14y

    He didn't even consider his insurance company or the renters insurance. He is going to pursue that option today he said. Great suggestion Joe Bertolino and Chris Masons ! thanks.

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  • Chris Masons
    Investor · Union, NJ · Member since 2011 · 838 posts · 295 votes
    14y

    Thats what insurtanace is there for!

    Glad to help! I was afraid youwere gonna say something not good like he dropped the insurance because blah blah blah

    Glad he may have an Ave to recover!

    regards,
    Chris

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  • Nathan Emmert
    Investor · San Ramon, CA · Member since 2011 · 1k+ posts · 569 votes
    14y
    Originally posted by Corey Dutton:
    He didn't even consider his insurance company or the renters insurance. He is going to pursue that option today he said. Great suggestion Joe Bertolino and Chris Masons ! thanks.

    Did he press Criminal charges? Someone a few months back posted an article that essentially said after a certain point, beyond wear and tear, it can become vandalism and move the matter beyond a civil issue to a criminal one. The big difference is if a judge grants damages as part of the conviction under a criminal case, not paying them lands the guy in jail...

    Something to look in to...

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  • Account Closed
    Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes
    14y

    What's the cash flow like on this house with a $150K loan? Will his rents and cash flow cover the $10K over time, and if so....how long? If he spends $10K today, plus interests and fees to get this money asap, is he throwing good money after bad? It's not even good money if he has to borrow it.

    Just because he has a bit of equity, doesn't mean he should keep it as a rental. I suggest helping him crunch the numbers to see what the long term future looks like on this property.

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    OP
    Lender · Salt Lake City, UT · Member since 2012 · 714 posts · 169 votes
    14y

    K. Marie Poe - Good call.

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  • Jeff S.
    Specialist · Portland, OR · Member since 2010 · 3k+ posts · 1k+ votes
    14y

    Did he qualify these tenants?

    I suggest he spend his spare time doing as much work as he can. He can't afford to hire out lots of stuff that is manual labor he can do himself.

    Should he be a landlord? Can he afford to be a landlord? One more deal like this and it is foreclosure time. Maybe he can get a better price selling "as is".

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