Renovating A Duplex with Very Little Cash - How to Finance or To Wait?

[Alexis Galligan]

Hello my name is Alexis. My partner Michael and I recently purchased a duplex in a historical neighborhood in Newport, KY. Our Initial plan was to renovate the lower unit, while we have the tenant upstairs and then renovate the top and live and occupy for a year-or two and then rent the top out and buy our next property. Our tenant is going to be out April 1st, which is a month sooner than we had planned. We also both have our apartments until then. 

We have a few thousand dollars cash saved up to get started with paint and small projects, but we'd like to renovate the kitchen and bathrooms. We are not sure the best strategy to go about financing our renovation.

Should we open a zero line of credit (through home depot, credit cards, loan?), if so, how do we do that, and then would we refinance afterwards? I guess were not sure the best route to take and specifically how to take it. We have gotten a lot of advice, but not super SPECIFIC. I want to get the renovation of the lower unit done in the next 3-months and then start the top unit enough to where we can comfortably live there. The mortgage payment is going to hurt us without a tenant, so we really need to get this moving. Any and all advice is appreciated. Thank you all. 

[Kevin Sobilo]

YIKES! It doesn't sound like you had a solid plan before you jumped into this. Plans need to include how to fund things and to have flexibility to deal some unknowns or uncontrollable things such as a tenant leaving or not paying.

1. Opening a credit card through Lower/Home Depot is a start because if you are doing a rehab and you can group your orders into large enough dollar amounts you can take them to the pro-desk and get them to quote you pricing which might save you 10-20% off retail just like a contractor ordering materials. In my area the minimum to order through the pro-desk is $1500 for Lowes and $2000 for Home Depot.

2. I would carefully look at what kind of renovation you want to do. Often times people try to renovate the way "they like" rather than what makes the most sense for what they plan to do with the property.

For example, you might have a 1980s bathroom which looks dated but is perfectly functional. Renovating it the way "you like" might cost $8k but only get you a small bump in rent and maybe only $5k more in home value.

So, REALLY scrutinize the work you plan to do. Look at what comparable rentals have and what those tenants expect. If you try to exceed what they expect in every way you will likely spend much more than makes sense for the return you'll get. So, learn about your customer in that way.

3. One option for funding might be just a personal loan from a local bank or credit union. If you have good credit and sufficient income, that might work. If not, move into that upper unit and then without your own rents to pay, you will probably qualify for one. That could get you enough to do the whole renovation depending on what you plan to spend.

4. A seasoned investor might use a hard money loan, but that probably won't work in your case because they usually want experienced investors, 1st lien position (you already have a mortgage), and you generally cannot live in the property. So, again having a funding plan is important from the get-go because the choices you made already basically negated this option I believe.

[Alecia Loveless]

@Alexis Galligan I would figure out the best way to get the biggest discount on the materials from Lowe’s and Home Depot. Whether that’s through their Pro Desks or the credit cards. Honestly I haven’t had that much luck with my Lowe’s credit card which I’ve had for years even though I make a 6 figure income and have asked them to increase the limit several times they still have kept it unreasonably low (under $4,000) which doesn’t get me far owning 25 units now. So for you it might mean opening a different type of credit card if you find the box stores are messing around with you because a limit like I’ve got won’t get you very far with a whole house renovation.

[Timur Salikov]

If you have a good w2 job and credit you can get a personal loan from SoFi or a bank like that. They go up to 100k. Yeah you will have a payment but if you do it correctly the rents should pay for it.

But thats a common problem investors have. I have units that need to be remodeled but I'm waiting to get the cash together.

[Kevin Sobilo]

Quote from @Alecia Loveless:

@Alexis Galligan I would figure out the best way to get the biggest discount on the materials from Lowe’s and Home Depot. Whether that’s through their Pro Desks or the credit cards. Honestly I haven’t had that much luck with my Lowe’s credit card which I’ve had for years even though I make a 6 figure income and have asked them to increase the limit several times they still have kept it unreasonably low (under $4,000) which doesn’t get me far owning 25 units now. So for you it might mean opening a different type of credit card if you find the box stores are messing around with you because a limit like I’ve got won’t get you very far with a whole house renovation.

@Alecia Loveless, your issue may be which Lowe's card you have. I went with one that isn't even offered any longer. I think it was just called their "Accounts Receivable" card and my limit is $8500 which has been sufficient for my needs, but I could foresee wanting to up that in the next couple years. I think Home Depot gave me over a $20k limit on their card. 

[Brian Kloft]

First, figure out how to get the renovation done in a couple of weeks not a few months. Every month it is not leased you are losing that rent and that is typically a killer. Unless you are doing some massive renovation a couple of weeks should be sufficient even to take it from an ugly rental to a very nice rental. Can the two of you do any of the work? Painting changing switches outlets lights etc. Look at buying online instead of at the big box stores. I personally get all of my lighting on Amazon. I like the looks much more than HD &L. I have also found good brands of faucets on Amazon that are less expensive.

[Matthew Paul]

Dont renovate then . At least right now . Repair what needs to be repaired , do a deep clean and paint . Make it look good  the way it is .   Then rent it out .  Do the same on the upstairs when the tenant leaves . Its an investment property , not an HGTV showplace .  If the kitchens and bathrooms work , dress them up , thats all .