Buying a house with equity - Best option to fund remodel?

[Christopher Oliva]

Hi Everyone,

I'm going to be buying a house at well below market rate, it isn't in terrible condition but it does need to be updated. My goal is to get it remolded as quickly as possible and turn it into a short term rental.

The house was built in the 70's and is in good condition considering it's age. The interior is almost entirely original so it will need some significant updating, there's some exterior work that needs to be done, and possibly some foundation work as well. In doing some market research it looks like I'll be getting the house at about 50% of the current market rate so I should have quite a bit of equity to work with, even in it's current condition.

Aside from using my own money, what would be a good option to fund the remodel? A HELOC, a home equity loan, or something else?

Thanks!

[Andy Sabisch]

The first question is what NEEDS to be updated versus what to you WANT to update. Remember, never over improve if it is not going to bump your net return. If you are planning on using it for a STR (assuming there are no restrictions locally in doing so), you want to make it attractive to those that will be renting it. You could promote it as having a 70's reto look and not spend a fortune in updating things.

It all comes down to numbers.  Have you run some of the calculators to see what you are looking at making at the purchase price and then in increments of renovation?  You might find at some point what you plan on putting in is not supported by the rates for the area and then you are losing money as you update further.  For a STR, the amenities / furnishings will be a bigger draw and hence payback than updates. 

But as far as funding, see what interest rates and terms you can get. Often you can get an interest only HELOC which woudl let you do the work and not worry about the PI payments until you get the STR income coming in on a steady basis. Try running different options because it all comes down to numbers

[Issac San Miguel]

Quote from @Christopher Oliva:

Hi Everyone,

I'm going to be buying a house at well below market rate, it isn't in terrible condition but it does need to be updated. My goal is to get it remolded as quickly as possible and turn it into a short term rental.

The house was built in the 70's and is in good condition considering it's age. The interior is almost entirely original so it will need some significant updating, there's some exterior work that needs to be done, and possibly some foundation work as well. In doing some market research it looks like I'll be getting the house at about 50% of the current market rate so I should have quite a bit of equity to work with, even in it's current condition.

Aside from using my own money, what would be a good option to fund the remodel? A HELOC, a home equity loan, or something else?

Thanks!

Look into an HML with rehab financing. You get reimbursed for the rehab to keep cash in your pocket.

[Andrew Garcia]

Hi @Christopher Oliva, the issue with a HELOC is that they are generally variable rates. However, they offer the best rates. I would do a HELOC then 6 months later, once the rehab is complete and the appraised value is higher, cash-out refinance into a 30-year fixed-rate loan and pay off the HELOC.

Hope this helps! Let me know if I can be of any assistance.

[Christopher Oliva]

Thank you all for your input!

[Natalie Godoy]

Hi Christopher! Have you considered working with a hard money lender? 

[Ryan Deasy]

@Christopher Oliva if you have enough equity I would recommend hard money and get all of your rehab covered so you don’t need to come out of pocket. Once the rehab is done and the value is higher, refi and pull your cash out and move on to the next one.

I did this many times and it worked well!

[Elena King]

@Christopher Oliva what did you end up going with on this property? I'm also in Tx and have found it very hard to find a lender who offers HELOC or similar products on investment properties. Curious what you were able to find!

[Eliott Elias]

Use hard money. Happy to put you in touch with my lender