Financing HUD renovation? Opinions?

Question

I recently won a bid on a house for 30k, and would like to hear your input on what's my best course of action.

I purchased this property as a buy and hold, and am looking to rent it out indefinitely after a few months of me living in it while i'm fixing her up.

After a run down assessment of the property, i'm estimating around $10-15K is needed in order to make it appealing when the time comes for rental.

I have around 8k of emergency savings in the bank that I can use, but I'd rather not touch that money since I like having a small cusion just in case life happens to throw curves.

So what would be my best option for funding the renovation?  I've done some research on the 203(k) loans, and it sounds like a good idea, but what draws me away is the additional interest over the life of the loan if i tie it in with the mortgage, which will cut into monthly income when the house rents later on.

Should I take out a small personal loan to fund the project?  Of course it would require more of my own money to be paid up front, but the interest on the loan ends when the balance is paid, so the only thing remaining would be the mortgage amount.

Any other options/opinions?

Emilio Ramirez · Answer

Looks like you are going to have to learn how to hit curve balls. Ok just kidding.

Don't know about the HUD program, but if you are living there to fix it up, why not stay for a year and a day which the IRS defines as two years or the minimum requirement to define owner occupied property. Then you could sell within five years and pay no capital gains taxes on it. I'm assuming that over the course of that year you will be able to remodel bit by bit and pay cash as you go from a paycheck.

Figen M. · Answer

Hi JG:
 
Don't you think you would have some equity after you renovate the house ? Because I assumed you bought the property less than the market value of the comparables. And by renovating it, you would make the house's value at least as high as the average comparables in the area (may be even more). I think you would have enough equity. 
good luck again

Figen M. · Answer

Hi:

It is not a recommandation but it is what I do. I have credit cards with high limits. I keep them usually on zero balance.They usually have promotions with 0% for certain period of time or low interest rate such as 3.99 or 4.99. If i am sure i can pay all the money back in certain amount of time, i use them. I read every line in the promotion and be sure there is not additional cost (other than the transaction fee). Every month I would pay the minimum amount. Because this house will be your primary residence,after you are done with the renovations, i would apply for Home Equity Line of Credit. After I get the line, I would pay off my credit card. BUT before i do anything I will make it sure that I will be able to get the HELOC. This is what I would do. I can not do right now,because none of the houses are my primary residence and it is almost impossible to get HELOC for investment property nowadays
Good luck
figgy

J G · Answer

for a HELOC I believe I would need to have a bit of equity in the property already to qualify for a credit line.

I would only have 3.5 percent (approx $1,200) from the down payment.

anyone have any experience with renovation a hud with a 203K loan?  it seems like quite the hassle with all the required inspections after the modifications are made, and not having the money up front for the projects.

Financing HUD renovation? Opinions?

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