Starting Cash-Out Refinance BEFORE Completed Rehab?

6 Replies

I'm roughly 2 years into a "Live-In" Flip where I've done all the rehab work myself to save money.  I'm about 90% done with the work and have roughly $10K debt on various credit cards from what I couldn't pay off myself.   The entire house is complete rehab.  The only projects remaining include the entire master bath, painting the exterior and some various touch ups that aren't really a factor.   I live in Wisconsin, so painting the exterior is not an option for about 3-4 months.

If I refinanced sooner, I could use the money to help pay off the CC debt and then parlay the rest into starting a flipping business on the side.  I'm curious how this might affect the appraisal in anyway?  What would you do?  

Purchased: $160K (153K remaining on mortgage)

ARV: $250K (fully renovated)

@Ryan Biankowski , The master bath would be a huge difference when getting a property appraised. Is it gutted or is it funcitonal but just out-dated? If it is just outdated you could try the refi now, but just know that you are short changing yourself thousands. Personally I'd just wait to finish the bath and then start the refi. Painting the outside shouldn't affect the value much unless it looks really bad.

Originally posted by @Neil Goradia :

@Ryan Biankowski, The master bath would be a huge difference when getting a property appraised. Is it gutted or is it funcitonal but just out-dated? If it is just outdated you could try the refi now, but just know that you are short changing yourself thousands. Personally I'd just wait to finish the bath and then start the refi. Painting the outside shouldn't affect the value much unless it looks really bad.

 Exterior is fine, outdated colors but blends in with the neighborhood.  Master bath is functional and the original from when the house was built 50 years ago.

I'd have to agree with @Neil Goradia . I would try to get that bath done before the Refi. Surely those thousands are more than the interest your paying on the credit card. Unless your factoring in the opportunity cost of not getting your flipping business going on the side. Potentially it would make sense to just do the refi now if it meant getting the business going and taking a small hit on the bathroom.  I would have a deal lined up or at least something in the works if that were my final decision.

Maybe a small line of credit against the house would solve your credit card debt short term if you are trying to avoid high rates of credit cards. If interest rates aren't an issue just wait it out until fully completed.

Max

@Ryan Biankowski factors that go into an appraisal are mostly location, square footage, number of bed and bathrooms, age and - general condition of the property. In other the value will be established by looking at homes that are similar in size, location and condition and have sold recently. You are rolling the dice anyway with an appraisal - I am seeing a bandwidth of perhaps 5-10% between different appraisals on the same property on a regular basis. In a parallel universe you may get a lower appraisal with a completed master bath. Don't get hung up on that too much, there is something to be said about keeping moving forward vs. getting it perfect.

If you are undecided go with @Max Gomeniouk s proposal and get a HELCO and refi later. PM me for a great lender.   

Ideally the appraiser will try to find comparables of similar partially completed rehabs to determine value. Just make sure the bath is functioning at time of appraisal. If not, the bathroom cannot be included in the final bath count or they'll have to submit it 'subject to' which defeats the purpose.

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