Financing a Rehab for House Hacking

[Benjamin Rosemont]

My wife and I just had an offer accepted on a property we're planning to house hack. The property will need some rehab to make it suitable for renting. We have a relative with extra cash who is willing to loan us money for the rehab. We offered $375,000, and all the surrounding properties in the neighborhood with comparable beds/baths are valued at $5-600,000+ (according to Zillow), so it appears we have a bit of opportunity for forced appreciation. We are doing a conventional loan at 5% down to purchase the property.

My question is, after fixing up and renting out the place, what do we do about the private loan? Do we refinance with the lender, take out a HELOC, or something else?

Also, how should we structure the private loan? Should we do interest only with a balloon payment after refinancing, or should we ammortize it?

Thanks,

Ben