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

12 Replies

Hi Everyone, anyone ever in a situation where the lender doesn’t give you 💯 of renovation cost and the project cost money, what do you do when you run out of money? How can I be creative will other hard money lender give loans just for renovations only?

Very unlikely that a professional lender is going to give you additional $$$, simply because that lender would have to assume a second position on the loan, and most won't do that.

Do you have friends/family that will make a personal loan? Do you have credit cards? Can you take out a loan against some other collateral? Can you take a loan against an IRA?

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.

in construction, estimated  how much it will cost and how much will it cost for real usually is not the same number so if your estimate is $100k for construction ask for $110k-$125k so this situation never happens. before i started hard money i ran a alf in Florida which they were in middle of

''estimated $7 million construction project'' in the end it was closer to $10 million 

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. 

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

@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. 

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.

Thank you all for your inputs, to be a little clearer I didn’t run out of money yet but the estimate that one contractor gave is much higher as we finalize on the plan got rid of that contractor he seems out of integrity, I am just looking for back up plan here should in case we fall short.. This’s our first project so it’s more of a learning experience for us, we are excited about this first project in-spite the challenges.. greatly appreciate the inputs please don’t hesitate to continued sharing..

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.