Re-financing before Rehabbing or wait?

Question

First time investor here and new to BP. I am currently house hacking a 3/2 here in Cocoa Beach, Fl area. My initial goal was to rehab the house after saving up some money. Since buying the house the property valve in my area has gone up substantially (~80k ish) in the past year. My question is, should I refinance the house and use that extra money to rehab the house and then refinance again when it's finished, or should I continue to save money and just pay out of pocket to rehab the house and then refinance. Long term goal with the house is to hold. Thank you in advance!

Marty Boardman · Answer

I'm curious Forest...what do you feel needs to be done at the house? If you're living in it now then it can't be that bad right? The rental market, especially in Florida, is white hot. I'm finding most tenants don't really care if a house is decked out with all the latest design features or not. They just need a house. It may be more profitable (and cost less money) to just do the basics (flooring, appliances, paint) to make it attractive to tenants. Waiting on bigger ticket items like a roof, HVAC system and windows could also make sense because material/labor costs will eventually come down. My best contractor in Phoenix is advising his clients to wait on kitchen/bath remodels for another 1-2 years until the supply chain gets back to normal. Good luck!

Joseph P Davis · Answer

Kinda interested in area around Titusville but we in rental in Chandler AZ since I work in Space industry the area around seems quite attractive. We did buy a last House Lansing MI I think we rehabbed a little and made maybe 40k and lived in the house for 1.5 years. Does the cast iron have a smell or rust in the home water is there lead, What is the reason for replacing cast Iron? Are you doing a lot of the work yourself or hiring a contractor? I painted the Exterior of my house and put shingles on a shed out back new sink and other cosmetic stuff. Well I wonder what is going to take place in housing market in 1-2 years with inflation and rates needing to go up to battle it? I remember I lived in Orlando for 1.5 years what is the coast like compared to Orlando for humidity and feel? Do you know any wholesale sellers down there or repair homes to find do not know how to find property. We bought ours from an assignable contract the owner was selling 108K we bought 120K sold for 200K but repairs and relator fees eat up a lot of profit. Well good luck I always try to do as much work as I can on stuff!

Eliott Elias · Answer

Has the value gone 80k up after rehab or as is? How much more value are you adding after the rehab?

I would try to refi once to avoid closing costs twice

Forest Owen · Answer

@Eliott Elias its going to be a short term rental. We have to take out old cast iron pipes which leads to bathroom and kitchen Reno regardless.

Eliott Elias · Answer

Why put more money into the house? Is your refi amount higher if you fix it up than if you refi as is? I wouldn't dump any money money into the house especially if you are living in it. Your cash can work harder somewhere else

Forest Owen · Answer

@John Clark thanks for the insight! Well crunch some numbers.

@Marty Boardman we have old cast iron pipes that need to be replaced which leads into bathrooms and kitchen remodel. We thought since we're starting the process might as well have a shot at the whole thing. The property has great potential to be a hot Aribnb which is our goal. We started planning and one add on leads to the next so currently finding that cut off point where its to much of an investment for the returns. Example: Pool, expanding garage and adding an ADU above it. Mudd room/laundry add on. Were leaning towards doing the inside basics of the house to get it bnb ready and tackling the bigger add ones later on due to the supply and costs. Thanks for the help!

@Fernando Sosa Thanks. it would be a rehab. the home equity loan is something were going to look into...

@Marty Boardman good to know on those loans! currently working on the "not over improving" part. its to easy to get carried away with it all.

Mike Schofield · Answer

I agree with @Marty Boardman that you should not over improve the home if the goal is to rent it out.  Also, avoid refinancing additional times if possible to avoid the fees.  There are loans in which you can finance the renovation costs and have the loan based on the new expected value.  This is permanent financing, and will eliminate the need for multiple closings.  If you and the property qualify, it is conventional financing (FHA and VA have options too).  The expectation of the lender in this scenario is that you are going to continue to live in it for a while though.  If that is absolutely not going to happen we could still do an investor renovation loan, but with different rates than the conventional option.

Fernando Sosa · Answer

depends on what you want to do.. do you want to rehab or flip? if you want to rent it out then you can take a smaller loan like a home equity loan.

i would take a fixed home equity loan because it's a fixed rate.. HELOCs are risky right now because of interest rates going up.. if you do a cash out refinance you would have a whole bunch of closing costs specially if you refinance again.

I would also plan ahead in case prices drop and you cant refinance because prices going down or interest rates going up.. that's what happened to people in 2008.

good luck

Re-financing before Rehabbing or wait?

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