How to Finance Renovation Cost

Question

For those that have not ran into my previous post, my name is David. I'm a new real estate investor focused on Multi Family properties.

I've been up thinking about financing. When going into a deal and you are preparing to finance a duplex (for example) with a 30-year fixed mortgage, is the capital you would like to spend on renovation included in the loan you get approved for or do you have to come out of pocket for that?

I understand that they are bundled when using an FHA 203k loan but that would mean I would have to be living in the one of those units via house hacking. Let's say for this example that I will not be doing that and will be renting out both units.

All thoughts and opinions welcome, thank you in advance for your input.

G. Brian Davis · Answer

Hi @David Miller II, on a standard 30 year conventional loan for a rental duplex, renovation money is not included, you are financing the purchase price only and covering rehab out of pocket or through a separate product. If you want renovation dollars rolled in without house hacking, look at a HomeStyle Renovation loan or a local portfolio lender who does purchase plus rehab draws, or a hard money bridge loan you refinance into a DSCR loan once the work is done. I'd get quotes on all three before locking in your approach.

Jonathan Klemm · Answer

@David Miller II  - Then you would not be able to use the FHA 203k if you are not going to live in the property and would need to find a lender that can do an investment loan.  Often, you have to bring more money to the table, like 10-15% on a straight investment property.

I personally prefer the Homestyle renovation loan over the FHA 203k because there are less requirements.  Here in Chicago, that is what we push our clients toward, but it still requires you to be an owner-occupant.

Stacy Raskin · Answer

If you're interested in non owner occupied rental properties, there are fix and flip options that will give you up to 90% of the purchase price  and 100% of the rehab done on draws depending on the borrower's credit profile and the property address. Then for the rehab, they will then give you draws for the rehab that you get reimbursed for after the lender confirms the work was done. There are programs with multiple draws. Once the rehab work is complete, you can refinance that loan into a long term rental loan such as a DSCR loan which has 30 year fixed programs and lower rates compared to fix and flip loans. Happy to connect to discuss further.

How to Finance Renovation Cost

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