Looking for advice on financing a fire damaged property rehabilitation in Memphis,TN

Residential Real Estate Agent · Irvine, CA · Member since 2013 · 2k+ posts · 1k+ votes

2mo

Private money is always better then HMLs.. The reason is that the private investor money can have way more favorable terms verse a larger HML that needs to cover investor returns and their own returns included on the spread. Private if you can get it. HML will for sure lend on something like this just will be worse terms and pricing.

If you refi, that all depends on the terms and all that you are looking for and what the rents are as well. If you cannot get normal full doc loans (better rate, but looks at you as the owner) then I would go DSCR. Those are the two options but it really depends on market and your lending ability too.

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Avi Weichman

Lender · Member since 2026 · 19 posts · 2 votes

2mo

Hi Dejuan,

-Private money (cheaper, and this fits in the box)

-Yes, the loan amount does make sense as long as the currant property value is around $25K (as low as $17k works but it's a bit more of a stretch)

-I don't think you need to sweat the construction financing structure based on the exit strategy, as you can now get DSCR loans on vacant units.

Always happy to run some numbers. - (I DM'd you.)

-Avi

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Andrew Lee

Lender · Grasonville, MD · Member since 2025 · 70 posts · 16 votes

2mo

Hi Dejuan,

Lender here. In this scenario, you would be looking at a ground up construction loan since the tear down would exceed 50%.

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Elizabeth LawrenceBusiness Member

Lender · OH · Member since 2022 · 18 posts · 7 votes

2mo

Hi Dejuan,

Wow thanks for all the details as this help me as a lender give you accurate advice. Here are those questions you ask and some responses in my opinion:

Would this project be better suited for a private money loan, hard money loan, or another type of financing?

You could take this either way, there are definitely hard money lenders out there that will consider a fire damage property, but know that there a lot that will say immediate no to this deal, I recommend working with a broker like ourselves to filter through the lenders who can get this done. There may be some simplicity of a private lender rather than hard.

If using private money, what loan terms would typically make sense for a project like this?

My biggest advice on this would be to make sure you have enough time on your term to truly get the project fully complete. You got a big project on your hands and I think often investors are not giving themselves enough time for hard or private money, always want to keep your lenders happy so set the right expectations from Day 1

Does my estimated loan amount seem reasonable based on the projected ARV?

65% of ARV seems like a great set up, should be easy to obtain terms on this!

If my plan is to refinance and hold the property as a rental, what financing structure would you recommend from the beginning?

Let's make sure that the property DSCR first before you get this house renovated and then it doesn't cash flow, we see this a lot. As you may renovate it differently if you plan to flip as you would to rent.

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LaTarence Dunbar

Lender · Washington DC · Member since 2026 · 73 posts · 19 votes

2mo

Great project, Owning the property free and clear puts you in a fantastic position. Here is a breakdown based on your numbers:

1. Is the $150k loan reasonable based on ARV? Yes. At a $216k–$230k ARV, a $150k loan puts your Loan-to-After-Repair-Value (LTARV) right at 65%–69%. Most private and hard money lenders cap at 70%–75% ARV, so your numbers fit right into standard underwriting guidelines especially given your contractor background.

2. Hard Money vs. Private Money vs. Alternative Funding

Hard Money / Bridge Loan: Since it’s a full fire-damage rehab, traditional banks won't touch it until it's habitable. A Hard Money/Fix-and-Flip loan will fund the $150k in draws as work is completed.
Alternative Option (Lower Interest): If you happen to own equity in another primary or investment property, pulling a HELOC or Cash-Out Refinance on that other property is often significantly cheaper than paying 2–4 origination points and 12%+ interest on a hard money construction loan.

3. Refinance & Rental Exit Strategy If your goal is to hold it as a long-term rental, you'll want to pivot out of short-term debt as soon as construction is done and a tenant is placed. Look into DSCR (Debt Service Coverage Ratio) refinancing it evaluates the rental income of the property rather than your personal tax returns, allowing you to pay off your rehab capital quickly without 60-day bank delays.

Wish you the best on the rehab, Memphis has great rental demand right now!

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Sean O'KeefePro Member

CPA | Accepting new clients | 50 States · Member since 2022 · 1k+ posts · 871 votes

2mo

Quote from @Dejuan Harvey:

I'm looking for advice on the best financing structure for my project.

I own a property at 1390 Kimball Avenue, Memphis, Tennessee, free and clear. The property consists of:

Main house: 1,204 sq. ft. with fire damage requiring a full renovation.

Guest house: 528 sq. ft. located behind the main house that also needs renovation.

Total living space: 1,732 sq. ft.

Project Overview

My goal is to fully renovate both homes to market standards. Based on my preliminary estimates, I believe the total project will require approximately $150,000 to complete all construction, including structural repairs, mechanical systems, interior finishes, and exterior improvements.

Estimated Value

Estimated loan needed: $150,000

Estimated After Repair Value (ARV): $216,000–$230,000

Experience

I own a construction company and perform much of the finish work with my crew, allowing me to control labor costs and timelines. We've completed multiple renovation and finish projects, including a 60 unit luxury apartment finish, so I'm confident in managing this rehab from start to finish.

Exit Strategy

I'm considering two possible exit strategies:

Sell the property after renovation if market conditions are favorable.

Refinance into a long-term loan and keep the property as a rental, using the refinance proceeds to pay off the private lender while generating long-term cash flow.

Questions

I'm hoping to get advice from experienced investors or lenders on the following:

Would this project be better suited for a private money loan, hard money loan, or another type of financing?

If using private money, what loan terms would typically make sense for a project like this?

Does my estimated loan amount seem reasonable based on the projected ARV?

If my plan is to refinance and hold the property as a rental, what financing structure would you recommend from the beginning?

I appreciate any feedback, suggestions, or constructive criticism. Thank you in advance for sharing your experience.

Hi Dejuan, congrats on locking down a project with this kind of spread between cost and ARV, that's exactly the room you want going into a fire rehab.

One thing nobody's touched on yet is the tax side of the fire damage itself, separate from the financing question.

If you got or are getting insurance proceeds for the fire loss, that's technically an involuntary conversion under Section 1033. If the proceeds end up higher than your adjusted basis in the damaged structure, you can owe tax on a gain even though you never sold anything. The way around it is reinvesting those proceeds into rebuilding or similar replacement property within the required window, usually 2 years, sometimes longer if there's ever a federal disaster declaration for the area. This is the kind of thing that blindsides people a year or two later when a letter shows up because nobody tracked basis against the insurance check.

Second thing, and this ties into what @Andrew Lee said about it likely being treated as ground up construction since the teardown is over 50 percent. That's the right call on the lending side, but it also matters for county reassessment. Shelby County will often reassess once permits show a rebuild of this size, sometimes before you even get to the refi stage. That new tax number can move your DSCR math more than people expect, so it's worth pulling a reassessment estimate now rather than finding out after @LaTarence Dundar's refi plan is already in motion.

Last thing worth deciding early is whether the rehab costs get fully capitalized or if any piece of it counts as repair. Since this is pre rental use, it's almost certainly all capitalized once placed in service, but that's also your window for a cost segregation study if you end up holding it as a rental. Breaking part of the rebuild into shorter recovery periods instead of straight 27.5 year residential depreciation can make a real difference in year one and two cash flow.

Good luck with it, Memphis rental demand is strong right now and it sounds like you've got the construction side well handled already.

Happy to Connect!

This post does not create a CPA-client relationship. The information contained in this post is not to be relied upon. Readers are advised to seek professional advice.

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Ashish AcharyaBusiness Member

CPA, CFP®, PFS · FL · Member since 2017 · 5k+ posts · 3k+ votes

2mo

@Dejuan Harvey,

Which financing type and loan terms make the most sense is really a lending question for others active in that space to weigh in on, so I'll leave those specifics to them.

Where the tax side matters, since you own a construction company and are planning to do a chunk of the finish work with your own crew, you can deduct what you actually pay your crew and materials, but not the value of your own labor as the owner, that distinction matters when tracking costs for basis purposes. Since the guest house and main house are separate structures on one property, keep costs allocated between the two, that split affects your basis calculation whichever exit strategy you land on.

Your exit decision changes the tax picture significantly. Sell after renovation and this looks like flip income, ordinary rates plus likely self employment tax given you're actively renovating and reselling, especially with a construction business already in the mix that could support dealer classification. If flipping is something you plan to keep doing beyond this one property, an S corp election is worth setting up, that caps the SE tax exposure on the flip profits rather than taking the full hit on every deal. Since you already have a construction company, running the flip through that existing entity instead of setting up something separate can actually save on SE taxes too, rather than reporting the flip as its own standalone activity.

Refinance and hold instead, and it's treated as a straight rental, the refi proceeds paying off the private lender isn't a taxable event, and you get depreciation plus a cost segregation opportunity on the fire damage rebuild and renovation, probably a bigger tax benefit long-term than the sale route given how much fresh construction is going into this.

Happy to connect!

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Erik EstradaBusiness Member

Lender · Member since 2022 · 6k+ posts · 1k+ votes

2mo

You have some good feedback here. But the main issue is finding a lender that will lend on an asset that is already owned and distressed.

Most private lenders and hard money lenders will lend on the purchase of such properties, however not if it is fully owned by you already. They will look at the deal as more of a risk since your deal is highly dependent on the ARV working, which in this case is tight.

Maybe you might want to re-strategize and see if taking on a partner that can contribute the rehab funds and share some of the upside. I think this will be an easier approach than finding a standalone private lender.

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Looking for advice on financing a fire damaged property rehabilitation in Memphis,TN

Looking for advice on financing a fire damaged property rehabilitation in Memphis,TN

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