Cash vs. Loan?

Question

Hi there! I'm a newbie and would love some input. I have a condo I inherited in FL where I own 50% of it. My brother would like to sell. It needs work, so we aren't going to get the best return on it, so I've decided since I have the skills and the time to rehab it, I would like to buy my brother out (probably somewhere in the 65,000 range). I have one rental already, with lots of untapped equity. I have the liquid to pay him, but not sure that's smart with capital gains? I have a HELOC I plan to use for the remodel (planning about 15,000-20,000 in repairs). I then plan to use it as a mid-term rental and see how that goes to try and recoup the remodel. Any opinions about paying cash for it vs. trying to find a private loan or use my other rental's equity? The condo does have a high HOA fee, which the stress of trying to pay a loan on top of the HOA (while it's vacant) sounds less appealing to me. Any thoughts?

Amber Jaworski · Answer

Thank you, Davon! I may reach out if I decide to go that way. I'm more interested at the moment if it's an ok move to use liquid to pay my brother off (HELOC for the remodel) vs. use a loan. Trying to decide on which direction to go, I'm leaning more towards liquid.

Davon Murphy · Answer

You welcome Amber 🙂 Take your time, I was just thinking from a real estate perspective how you can maximize this situation and help you profit off of a 2 or 3+ deals you could get behind this alongside your current liquidity. Thank you for responding and keep me or us in mind for how this is progressing. I'm genuinely interested in this.

Gregory Acs · Answer

Hi Amber,

It sounds like you've put a lot of thought into this already. Whether paying cash or using financing is the better option really depends on your overall goals. Paying cash avoids another monthly payment while you're renovating, but using financing can preserve your liquidity for unexpected expenses or future investment opportunities.

Since you already have a HELOC and another property with equity, it may be worth comparing all of your options before committing. The best choice isn't always the one with the lowest payment, it's the one that gives you the most flexibility while keeping the project profitable.

I'm a mortgage broker and work with investors on scenarios like this. I'd be happy to help you compare the different financing options and see which one makes the most sense for your goals. Feel free to send me a message.

Divin Kanyama · Answer

It sounds like you’re approaching this thoughtfully, @Amber Jaworski . Paying cash could make sense if it still leaves you with a healthy reserve for the remodel, HOA dues, taxes, insurance, possible assessments, and a few months of vacancy. It would also reduce the pressure of carrying another loan while the condo is being renovated and leased.

A HELOC or private loan would preserve more cash, but it adds interest and puts more pressure on the rental to perform. Before deciding, compare the monthly costs and remaining reserves under each option. Also confirm the condo’s as-is value, rental restrictions, and the inherited tax basis with a tax professional, since the inherited and purchased portions may be treated differently in a future sale.

If the mid-term rental works using conservative rent, occupancy, and expense assumptions—and paying cash still leaves a comfortable cushion—the simplicity and lower stress may be worth more than maximizing leverage.

Davon Murphy · Answer

Hi Amber, I am in the Transactional Funding space and I work primarily with lenders who 'need more deals' to lend, truthfully speaking I am not sure about condos because I have been focused on commercial multi-family deals and the one 29-SFH portfolio I'm helping a buyer and her agent with. However I'm certain if your condo needs some type of work done, I could recommend you to one of my investors and lender contacts that I partnered with as my capital partners. You could probably buy out your brother with one of these loans with a combination with the HELOC. Whatever I can do to help you with your goals and even if the money you get can be used towards a house purchase, I think there is something they can probably do. It Might be a fix and flip type. Feel free to message me and let's see what we can do.

Cash vs. Loan?

Cash vs. Loan?

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