Keep $30,000 for Reserves or Finish Basement

[Michael Taylor]

I purchased a 6 unit apartment building on the south side of Chicago In January 2020 that I had to rehab, it is on a one year loan with an investor. Not only did I have bad tenants that I had to evict, but then came Covid-19 which stopped that eviction process. As of today I have one last person to get out of the building which has delayed my rehab schedule (I have until the end of the year to refinance this building). As of today, I have rehabbed 5 of the 6 units (which are all rented out at $1200 a month) and I have to build a laundry in the basement and take care of some minor plumbing work and porch reinforcement (this will all be completed by July 31, not sure when the last tenant will be evicted). The challenge is that after my rehab is complete, I will have about $30,000 left over. I can either keep that money as I will need reserve funds to refinance, or use that money to add a garden 2 bedroom garden apartment. By making the building a 7 unit instead of a 6 unit, I can refinance for more as I need to pull my investment money out. So, for the experts on the forum, should I invest the money and add a garden apartment or hold onto the money making my financial positions stronger for the refinance?

[Mike B.]

I'd stabalize the building, refi out and add the basement apartment later. If you don't secure your refi, you can be stuck in a high interest loan indefinitely...assuming your hml will even extend. That is a nightmare scenario.

There are various other potential issues... are you zoned for 7 units? Did you pull permits for the work performed thus far? If the answer to one or both of those questions is no, you are really opening yourself up to unnecessary risk.