Rehab personal home taking funds from rental property equity

BRRRR - Buy, Rehab, Rent, Refinance, Repeat
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Rehab personal home taking funds from rental property equity

Lisa Albright
Member since 2023 · 17 posts · 4 votes

Hi All,

Newbie here, just a quick question we are building an addition on our second home, we have a primary residence, and two rental properties. We are trying to not use our retirement funds. Are there any strategies here to utilize bank funds for our project? Thank you in advance to a great community!

L

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Steven Goldman
Lender · PA · Member since 2019 · 535 posts · 461 votes
1y

@Jake Baker  You should think about a rehab loan if you are going to buy and hold. You will incur more lending costs but you will only be in the first loan for 6 months. Some rehab lenders have favorable refinancing programs to convert the rehab loan to permanent 30 year financing. Most rehab loans offer 85 to 90 percent of the purchase price and 100 percent of the renovation costs. It allows you to use a small fraction of your own money. Good luck and keep moving forward!

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  • Dominic Mazzarella
    Investor · Hendersonville, NC · Member since 2016 · 498 posts · 286 votes
    1y
    Quote from @Lisa Albright:

    Hi All,

    Newbie here, just a quick question we are building an addition on our second home, we have a primary residence, and two rental properties. We are trying to not use our retirement funds. Are there any strategies here to utilize bank funds for our project? Thank you in advance to a great community!

    L


    One common strategy is doing a cash-out refinance on one of your rental properties to tap into the equity. Another option could be a home equity line of credit (HELOC) if you have enough equity in your primary or second home. Both allow you to avoid touching retirement funds while leveraging the value of your properties. Just make sure the numbers work for repayment and your overall financial goals.

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  • Lisa Albright
    OP
    Member since 2023 · 17 posts · 4 votes
    1y

    Thanks so much for the response Dominic. I really appreciate it. 

    Have a nice day.

    L

    0Reply
  • Dominic Mazzarella
    Investor · Hendersonville, NC · Member since 2016 · 498 posts · 286 votes
    1y
    Quote from @Lisa Albright:

    Thanks so much for the response Dominic. I really appreciate it. 

    Have a nice day.

    L


    No problem at all Lisa. I used to work in finance and we could get clients approved for a HELOC in less than 24 hours which will be much quicker than the cash out finance. Just make sure you're comfortable with the interest rate if going either route.

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  • Jake BakerBusiness Member
    Flipper/Rehabber · San Diego, CA · Member since 2020 · 1k+ posts · 696 votes
    1y

    @Lisa Albright

    One thing to consider is your return on equity (ROE). If you have a lot of equity and little cash flow, you should consider accessing that equity to use elsewhere.

    Another factor to consider is your interest rate on the debt. Consider a HELOC for value-added BRRRRs or flips if you have a low interest rate. If you already have a high interest rate, consider a cash-out refinance with a fixed rate rather than a HELOC.

    A third option could be to sell. Consider the "2 of the last 5 year rule" to avoid capital gains. If the signs point to selling, consult your CPA about the tax implications.

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  • Lisa Albright
    OP
    Member since 2023 · 17 posts · 4 votes
    1y

    Hi Jake, 

    Thank you so much, I forgot about the 2 of the last 5 year rule, I'll look into all the options you mentioned. Really appreciate your feedback. 

    Lisa

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  • Jules Aton
    MD/DC · Member since 2024 · 1k+ posts · 1k+ votes
    1y

    If someone is willing to live in and renovate the 2 of last 5 year capital gains exclusion is a significant consideration. I did that out of necessity with my first 2 houses and was able to buy in a nicer neighborhood than I could actually afford because they weren't updated. 

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  • Chris Barrett
    Investor · Madison WI · Member since 2021 · 177 posts · 103 votes
    1y

    You're going to end up paying a lot more interest on a heloc than a 2nd mortgage, if you intend on holding that debt for more than a couple years. 

    0Reply
  • Steven Goldman
    Lender · PA · Member since 2019 · 535 posts · 461 votes
    1y

    @Jake Baker  You should think about a rehab loan if you are going to buy and hold. You will incur more lending costs but you will only be in the first loan for 6 months. Some rehab lenders have favorable refinancing programs to convert the rehab loan to permanent 30 year financing. Most rehab loans offer 85 to 90 percent of the purchase price and 100 percent of the renovation costs. It allows you to use a small fraction of your own money. Good luck and keep moving forward!

    1Reply
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