Should I take my time, or use more credit to hurry up?

[Robert Richardson]

OK BP, I'm looking for a little advice here on our BRRRR. My wife and I purchased our first rental property in March and we are still trying to make it profitable. We purchased a building for $11,500 that has two one bedroom apartments and one studio, but the city zoned it as a two unit building so we cannot rent out the studio. The building is 100 years old and needed just about everything fixed and updated. Purchasing a building that was so poorly cared for has certainly come with lots of problems, feel free to check out my previous posts.

We started getting work done on the exterior like roof, windows, exterior paint, new doors, railing for the stairs… Some things are coming in below budget, and some over budget like the roof needed all new wood under the shingles. At the start, we had $30,000 to invest so we haven’t used any credit yet, but we are about to. The two inherited renters have been signed to one year leases, until March of next year, the third tenant had to move out because we could not legally rent to him. The rents are $500 and $450. They are below market value, but need to be rehabbed. As we start to use credit to pay for rehab, we plan to pay back any credit we use once we take out a mortgage on the building. Originally, we planned to spend a year using the money made from rent to rehab the exterior and common fixtures, and not touch the units themselves until the year lease is up and the current tenants move out. I didn’t think we would find lenders who would lend on a new appraisal versus the sale price of the building until we owned it for a year anyways. Well, I started calling local “small” banks and the first three that I called all said they would gladly lend on a new appraisal right away, no need to wait.

I would like to finish the building now, take out a mortgage, pay off any credit we have used so far and see what we have left to start our next project, but here is my dilemma. I believe I would have to update everything including the units to get the building to appraise where I need it. To do that I would need to use a lot of credit. The first bit of credit is a HELOC on our primary residence, so that is cheap, no problem there. That will still not be enough money to get everything done so we would need to use credit cards and that gets very expensive. Also, because our renters are paying below market value, it would be harder to pay the mortgage. I am impatient and want to hurry up and move on to the next project, but since I singed the current renters to a year lease, I think we are going to have to wait and follow our original plan. Anyone have any thoughts? By the way I think we are going to finish the empty studio, furnish it and list it on Airbnb as a room with a bathroom, not an apartment. Anyone have any thoughts on the legality of that? I appreciate any advice!