HELP. BEST WAY TO GO ABOUT FINANCING REHAB COSTS

[Eunice Villarroel]

Recently purchased a fixer upper, hoping to do a BRRRR on it. I would like to buy another property this year also. I have 60k in cash at the moment, rehab costs to property would run about 50k . Is it better to borrow that from the bank? if so, should I pull a heloc (on another property with 2.5% interest on the mortgage and 120 k in equity) or a regular loan? What loans offer the best terms? Im hoping to cash out refinance in 6 months and pay off the loan that way. I want to stay as liquid as possible for the time being

[Andrew Moore]

My first question would be, at what interest rate are you able to pull equity from your existing property right now. You are likely going to be borrowing from the bank regardless, it's just a matter of at what point in the process you do that. If you pull the money from your existing property now, your debt service will increase immediately.

If you use the cash to fund the rehab, you will refinance that property when complete based on the ARV. That would allow you to pull excess cash from that BRRR deal. If you don't have enough to fund the next acquisition you would have to do a HELOC, or cash out refi on your existing property to utilize that $120k in equity. Keep in mind you will likely only get 70% LTV (maybe 80% if you can find the right lender). Also, should you run into a situation where your rehab costs exceed the $60k, you may need to utilize that equity anyway.

The other option would be to fund the deal rehab with private money, although that's likely going to be at a higher interest rate than what banks will offer. Upside to private money is you are generally going to have a bit more flexibility on how that is utilized. 

Hope this helps!