How to fund major repair work on rental properties

Question

Hi All,

I would love to hear you experiences on funding major repairs on your rental properties. Two ways that I know are- Cash out refinance, line of equity. Are these the best or is there something out there?

I only own SFHs and figure they will need a major repair/improvement sooner or later.

Thanks in advance!

Satya

Lee S. · Answer

I'm just starting to accumulate rentals.  All my funds will go into an account untouched until I have 10k for each rental house in that account.  Once I have that I can then use the monthly cash flow for whatever I want.  If a major repair or vacancy hits, I then start refunding the acct until it's back to 10k per house.  Better safe than sorry.

Thomas S. · Answer

I use a LOC to operate my business but for the small investor it is mandatory that you have a reserve fund that would at a minimum cover a 6 month vacancy. To be able to operate as stress free as possible the little guy should have 10-20K in reserve.

Lee S. · Answer

I have ample credit lines as well but prefer to use cash.  I'm in a fortunate position that I don't need the income from my rentals so it's easier to save it up. It looks good on paper when I need to get financing.  I prefer to use the credit lines for short term financing so I can buy with "cash".

Joyce Tavares · Answer

I prefer to have a Personal Line of Credit handy for any emergency repairs.  I keep it at 50K and renew it each year for $25.  Haven't had to use in a while as most items go on a credit card (with points), and I then pay off monthly...

An Equity Line of Credit on a couple of the rentals would work great too.  I don't think I would sell anything in this market...rents are just too good and pay for the mortgages.

I do send out yearly maintenance questionnaires to see if there are any issues that may come up but find if you fix any items, there are not many major repairs due.  Usually big-tickets items (roof, furnace, etc.) have really good rates within financing thru company that installed them.

I also add extra personal touch items yearly, just before giving any rent increases.  :0)

Lois Ginter · Answer

Can you set up a reserve fund?  If you can't use the method that will have the lowest over all interest cost for the loan.  If you have multiple properties, does it make sense to sell one to pay for the repairs of many?

Satya Patil · Answer

@Lee S. @Joyce Tavares Thomas S.

Thanks you all for you suggestions. This is really helpful!

Eddie T. · Answer

@Joyce Tavares what bank were you able to obtain a personal LOC with?

Satya Patil · Answer

@Lois Ginter

Thanks! I don't have a reserve right now but this is something I could definitely do very easily. Didn't think about selling one for the repairs on other but definitely worth considering.

How to fund major repair work on rental properties

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