Refi to pay for repairs but generate rent increases

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Refi to pay for repairs but generate rent increases

David K.
Investor · Attleboro, MA · Member since 2016 · 137 posts · 51 votes

I've got a few vacancies for long term tenants right now.  With proper upgrades I can generate an additional $500 per month in rents.  However between needing two new roofs, and other repairs I will soon be out close to $40,000.  I was thinking of refinancing one property whereupon my payment would increase $180 per month, and would pull 40k out of it. The new loan would be for $150k, with a value of $275k.    I have 25 years left on my current mortgage.  The new mortgage interest rate would be the same as the previous loan. 

I wanted to pay this off, however I'm starting to think otherwise.  I'd still be ahead of the game from a cashflow standpoint.  With so much equity sitting in one of these properties, I'm really debating this instead of exhausting my savings.  For the record all my properties have low mortgages compared to values, and with my credit and income the refi won't be an issue.

Just wondering what others who have 10+ units do.....

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Ralph Poirier
Rental Property Investor · Wrentham, MA · Member since 2019 · 137 posts · 104 votes
6y

Sounds like you have two choices: 1) Since they need all that work you could sell them or 2) You refi and fix them.  Based on what you said you can increase the rents and from what I can tell the increase in rent would cover the increase in costs.  Since it sounds like you want to continue to own these properties I don't see why you wouldn't spend the money.  This comes from a guy who grew up in Dodgeville (and parents still live there)!!

Good luck!

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  • Ralph Poirier
    Rental Property Investor · Wrentham, MA · Member since 2019 · 137 posts · 104 votes
    6y

    Sounds like you have two choices: 1) Since they need all that work you could sell them or 2) You refi and fix them.  Based on what you said you can increase the rents and from what I can tell the increase in rent would cover the increase in costs.  Since it sounds like you want to continue to own these properties I don't see why you wouldn't spend the money.  This comes from a guy who grew up in Dodgeville (and parents still live there)!!

    Good luck!

    2Reply
  • Theresa HarrisPro Member
    Member since 2019 · 15k+ posts · 11k+ votes
    6y

    @David K. I would do it, but take out a bit more than you think you need to cover the unexpected.  If it generates an extra $500/month and adds $180/month to your loan payments, you are still coming out further ahead.  Not to mention you have two new roofs and the other repairs are done.  Add the extra money to your loan payments if you want to pay it off faster.

    1Reply
  • Joseph Firmin
    Rental Property Investor · Smyrna, GA · Member since 2018 · 974 posts · 645 votes
    6y

    I vote for Refi - bet on the long term and at $500/mo. you'll be able to accelerate the paydown (if that's what you want).  Good luck!

    1Reply
  • Michael Ablan
    Real Estate Broker · Watertown, NY · Member since 2016 · 1k+ posts · 1k+ votes
    6y

    @David K.  -  If they're sitting empty unless you do the repairs, then you do the repairs....or sell them.  I'm constantly refinancing our equity to do upgrades to our existing portfolio.  The idea is you do it once, do it right, with the higher quality materials and hopefully you shouldn't have to do it again until 15 years down the road.  This is a long haul game. I can't make it through the long haul if my properties aren't rented

    1Reply
  • Nathan GesnerBusiness Member
    Moderator
    Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
    6y

    If you put $40,000 into it and then increase rent $500 a month, that's a 15% return on your cash invested. I would renovate and stay put.

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  • David K.
    OP
    Investor · Attleboro, MA · Member since 2016 · 137 posts · 51 votes
    6y
    Originally posted by @Michael Ablan:

    @David K.  -  If they're sitting empty unless you do the repairs, then you do the repairs....or sell them.  I'm constantly refinancing our equity to do upgrades to our existing portfolio.  The idea is you do it once, do it right, with the higher quality materials and hopefully you shouldn't have to do it again until 15 years down the road.  This is a long haul game. I can't make it through the long haul if my properties aren't rented

    Kinda what I was thinking.  Didn't know others were refi existing portfolios to do upgrades etc. 

    0Reply
  • David K.
    OP
    Investor · Attleboro, MA · Member since 2016 · 137 posts · 51 votes
    6y
    Originally posted by @Michael Ablan:

    @David K.  -  If they're sitting empty unless you do the repairs, then you do the repairs....or sell them.  I'm constantly refinancing our equity to do upgrades to our existing portfolio.  The idea is you do it once, do it right, with the higher quality materials and hopefully you shouldn't have to do it again until 15 years down the road.  This is a long haul game. I can't make it through the long haul if my properties aren't rented

     What general upgrades do you do that don't break the bank, where you feel the investment gets returned?  My first thing is generally appliances.  I can get brand new stove and fridges for about $1200.  Instantly upgrades the unit.  

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  • Michael Ablan
    Real Estate Broker · Watertown, NY · Member since 2016 · 1k+ posts · 1k+ votes
    6y
    Originally posted by @David K.:
    Originally posted by @Michael Ablan:

    @David K.  -  If they're sitting empty unless you do the repairs, then you do the repairs....or sell them.  I'm constantly refinancing our equity to do upgrades to our existing portfolio.  The idea is you do it once, do it right, with the higher quality materials and hopefully you shouldn't have to do it again until 15 years down the road.  This is a long haul game. I can't make it through the long haul if my properties aren't rented

     What general upgrades do you do that don't break the bank, where you feel the investment gets returned?  My first thing is generally appliances.  I can get brand new stove and fridges for about $1200.  Instantly upgrades the unit.  

    Paint, flooring, light fixtures, doors, door hardware, landscaping

    0Reply
  • David K.
    OP
    Investor · Attleboro, MA · Member since 2016 · 137 posts · 51 votes
    6y
    Originally posted by @Nathan Gesner:

    If you put $40,000 into it and then increase rent $500 a month, that's a 15% return on your cash invested. I would renovate and stay put.

     Looking like a cash out of 50k, will cost me $189 per month.  Renovation cost is $10,000.  Adding $250 per month in rent.  Gives me another $40k to upgrade other units.

    1Reply
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