Looking for advice on financing a fire damaged property rehabilitation in Memphis,TN
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.
Most Popular Reply
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!