Rehab loan- advice??!

[Charles Lundquist]

I’m going to close on a property in three weeks up in Philly—a $300K investment with four one-bedroom units that need cosmetic fixes. I have capital to fix them, but I don’t want to tie all my money up in one deal, and I’m wondering if anyone has ideas on the best way to finance it.

So far, I've thought of a few options. First, maybe pulling a HELOC on the property. I also tried seeing if I could borrow against my 401(k)s, but that won't work because they're from old employers. I considered taking a loan from a friend at a 10% interest rate—I could do this, but I don't want to involve people I know well.

I’ve also thought about using a personal loan. These are around 13% interest, which seems really high. Finally, I found a loan broker who said he could call banks and get rates around 6–7%, but there would be a fee, and I’m wondering what I should do. None of these options seem very attractive.

I don’t want to spend all my money on this deal—I want to scale down the line—but I’m at a loss. I’m thinking of just making a list of banks and calling them myself. The initial renovation scope is only $20K, but for the whole building it could run up to $80K.

[Denise Webster]

Hello @Charles Lundquist. Since you already have some capital, I would be careful about solving this only by chasing the lowest rate.

For a 4-unit project, the right financing structure should account for timing, flexibility, and exit — not just interest cost.  I’d compare each option against:

• How fast the funds can actually close
• Whether funds are advanced upfront or reimbursed after work is completed
• Total cost including points, fees, and prepayment penalties
• Whether the loan creates personal DTI issues
• Whether the property will qualify for a refinance after repairs
• How much cash reserve remains after closing and rehab
• What happens if the $20K scope becomes $40K or $80K

A HELOC or personal loan may be simple, but it can create personal balance sheet pressure. A rehab or bridge loan may preserve liquidity, but the draw process and fees matter. A friend/private loan may be flexible, but mixing close relationships with project risk can get uncomfortable.

I'd advise my client that we build the deal package first: purchase contract, current rent roll, repair scope, contractor bids, ARV support, stabilized rent comps, and refinance/sale exit. Once that is clear, the best funding option is easier to identify.