Looking for advice on financing options to cover rehab

[Christine Edwards]

I have a rental property currently leased through May 2021 with about $60,000 in equity.

I have my personal home that is in desperate need of an upgrade.  Purchased foreclosed property.  Was using savings/credit cards...etc to fix it up.  Now the items that need done are larger, i.e, siding, roof, windows, electric upgrade.  etc.etc.

The second home  current appraisal $150,000, balance 128,000.  After rehab value could be in the range of $400,000 based on recent sales of other rehabbed homes in the area.

Just not real sure which way to go from here.  I am sure I didn't include some information I should have.  Please ask questions.  I could really use some guidance on what to do.

Thank you in advance for your help

[Erik W.]

"desperate need of an upgrade"

My house is in desperate need of a keg-o-rator.  *grins

All right, I'm kidding with you a little to try to help put things into perspective.  Unless you have a leaking roof or are getting shocked every time you plug something in or flip a light switch, there is a vast gulf between NEEDS and WANTS.  Wants are fine, so long as you can pay for them, and since these are going into your existing person residence they should not be viewing with the same money making thoughts as a rental property.

Therefore, I would strongly discourage ANY form of borrowing to do these home upgrades.  No credit cards, no HELOCs, no hard money.  Cash only.

Why?

Because you'll be less tempted to overspend and put in a $2,000 keg-o-rator like I would if I were doing home upgrades.  Also, you'll be sure that your cash flow can handle it because it will all be paid for with cash flow.

Projects can be broken up into phases so you can feel like you're making progress.  For example, siding is not that big of a deal.  Do the front.  Then do the sides.  Then do the back.  Then do the 2nd story (if you have one).

Ditto windows.  Do 10 this month, 10 next month, and finish up in March after tax refund season.  The window guys will do it, I'm sure.

Electric will probably be around $6,000 - $8,000 for a medium to large size house.  Last year I got bids on a small house (700 sq ft) it was $2,500-$3,000 for an up-to-city code rewire that included a new 220 amp riser, a new panel, GFIs in all wet locations, and hard wired smoke detectors.  They're on fuse panels, which work just fine as long as no one is getting shocked.  I left them "as is".

Roof are a bit more costly, but again if you're making good money just tuck away a couple grand each month and have a new roof by winter.  Pick up some extra hours or a side hustle.

I'm not a fan of borrowing money (Dave Ramsey fan), but if you'd be doing this upgrades to rental I could at least see it as being a way to improve cash flow to help pay for itself.  You're not improving any cash flow here, just adding on another bill that will suck your cash flow dry for the next 5 - 10 years if you let it, then of course you'll have more desperately needed upgrades.  It becomes a never ending debt cycle.  Don't fall into it.