What do you do when you run out of money renovating a house

Question

Clint E. · Answer

@Alexcia White Have you looked into the Home Depot Project Loan?

https://www.homedepot.com/c/Project_Loan

Mike H. · Answer

I would be very hesitant to do any deal where you're saying going in that you don't have enough money to complete the rehab.

Not only do you need enough money in total (from the lender funds plus your funds) to cover the purchase and rehab, but you really need to have a contingency fund available to you as well before you should take down the deal.

You have to expect the unexpected. And you never want to be in a position where you run out of money. If you're flipping and you run out, you can't flip the house and you'll default on the loan in short order.

Once that happens, you'll no longer be able to invest in real estate.

If you don't have enough money, I would suggest that you either 1) wholesale the deal to another investor so you can at least make something or 2) partner with another investor that does have money including enough money that they can get you whole on the rehab needed plus any contingencies should they arise.

Better to lose 10k on a deal than to default on your loan. Even if you lose 10k, you can still borrow again and can make 40k on your next deal. If you default on a hard money loan, you may never get another shot to invest again.

Brian Pulaski · Answer

@J Scott has it right, max out cards, friends and family loans... I would say if you can't fund the deal, then it isn't a "deal" anymore.

Aaron K. · Answer

I second what @J Scott has said, if you ever find yourself in that situation your options are take loans from friends and family (generally not recommended especially if you find yourself in this position) or high interest forms of credit like credit cards or title loans or to lose money.

Hopefully you never find yourself in this position because there are really no good options available.

Cara Lonsdale · Answer

It's a scary thing to not have a rehab project funded properly with ample contingency/reserve.  SO, I would suggest NEVER going in to a project without that.

HOWEVER, it can be helpful to bill anything out that allows for it.  In other words, look into contractors that take terms.  Many of them offer 6 months same as cash and/or 0% interest.  Also, look into a credit card that may be a good tool for this like the HD mentioned above, or Wells Fargo has a Home Projects Visa.  This also has similar terms, but offers 12 months 0% interest for approved contractor purchases.  I used this to fund windows in a property that we didn't have originally budgeted, but decided to do as a value-add to the property.  It allowed me to do it without holding up my cash on hand.

Sam Shueh · Answer

Heloc, private loan

Carl Fischer · Answer

@Alexcia White

Did you know private lenders can lend you funds from their retirement accounts? You would set up the terms in a promissory note acknowledgement and they would send you funds from a self-directed IRA or 401(k). There are a couple of prohibited persons such as certain family members and business partners. The most challenging thing with private lenders is finding them. In my experience, networking a real estate investors groups is a great way to meet private lenders and establish a relationship with them.

Another way to buy real estate is through your self-directed retirement account. The purchaser would be the IRA. You can use your retirement funds such as a pension, 401(k) or IRA/Roth IRA to purchase and hold the real estate. We have many clients who use self-directed accounts for real estate investing.

I would be happy to connect and discuss more with you.

Cynthia Hairston · Answer

how about use a lender that funds 100% or else make sure you can afford to finish the repairs. Otherwise, as another BP member said, there are really no good options at this point and now you will have to find a way to go deeper in debt, if you find it, Talk to your lender and ask for help. Best answer

Cynthia Hairston · Answer

I know you probably don't want to hear this, but if you would have gone through the house using BP's rehab calculator, you would have had everything listed with a cost associated with that item, and then a list to go through of everything possible included. then you could print that report and its totals to see if you really had a deal, to begin with. If we had the loan, you would also have to have your schedule and costs approved as well as have a good deal. If it was approved, you could then ask for more money if a surprise came up. Make sure you leave about $5000 in the budget for surprises because they are not at all uncommon.

What do you do when you run out of money renovating a house

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