Repair cost for Loan is too expensive.

[Michael Taylor]

Purchasing 5 unit for $260K in Chicago on the southside.  The building is in great shape, particularly the common areas, basement, boiler, roof, exterior, electrical, and 3 car garage.  I was disappointed that the interior of the units are the original 1930's flooring and sinks.  The stuff maybe old, but everything works.  The improvements needed are simple cosmetic, sand floor, some new vinyl flooring here and there, paint, kitchen and bathroom upgrades, and new appliances.  I have a good team, so I should be able to upgrade the interior on a migratory plan as tenants move out for about $8,000 each.  So I need about $40,000 for rehab.  

The question is; do I take the loan with the rehab money that is interest only for one year then refinance after rehab, or take the purchase only loan at 30 years fix rate and rehab out of pocket?  The fees, points, higher interest, etc.  will cost me thousands of dollars.  It is much cheaper to go to a loan shark (plenty of companies offering me money) that would be much cheaper.  This way I don't have to refinance (pay twice for fees, closing points, appraisal, etc.), so I have to go for the purchase only.  If the building was vacant and I needed to perform the rehab all at once, that would be one thing, but I can upgrade each unit as tenants move out.  What are your thoughts?