Rate & Term Refinance. Partly (1 of 3 units) Renovated.

[Thomas B.]

I bought my 1st Investment Property back in June using $99K cash offer from a HELOC. I knew going in that it needed extensive repairs including new roof and foundation work and probably a rewire. I figured a $50k 401K Loan should cover the renovation.

The property is technically zoned as a 2/1 SFH built in 1948. It has a 1 car attached garage that was previously converted to a 1/1 apartment and a detached 2 car garage that has a small efficiency apartment in the rear. The roof has been replaced and the foundation repaired. The rewire is costing far more than projected. I will only be able to rewire the main 2/1 and have enough left over to finish it up, leaving the other 2 units to be renovated at a later date.

Will I run into any problems trying to refinance with only the main unit renovated?

The online home value estimators peg the property value at $155-165K. Looking for a fixed 30yr mortgage, before rates go any higher. The 2/1 will be rented for $1230, but once the other 2 units are renovated, they'll rent for $1080 and $930 respectively. 

[Stephanie P.]

Quote from @Thomas B.:

I bought my 1st Investment Property back in June using $99K cash offer from a HELOC. I knew going in that it needed extensive repairs including new roof and foundation work and probably a rewire. I figured a $50k 401K Loan should cover the renovation.

The property is technically zoned as a 2/1 SFH built in 1948. It has a 1 car attached garage that was previously converted to a 1/1 apartment and a detached 2 car garage that has a small efficiency apartment in the rear. The roof has been replaced and the foundation repaired. The rewire is costing far more than projected. I will only be able to rewire the main 2/1 and have enough left over to finish it up, leaving the other 2 units to be renovated at a later date.

Will I run into any problems trying to refinance with only the main unit renovated?

The online home value estimators peg the property value at $155-165K. Looking for a fixed 30yr mortgage, before rates go any higher. The 2/1 will be rented for $1230, but once the other 2 units are renovated, they'll rent for $1080 and $930 respectively. 

 Zoning red flags jump out on this one.

There is no such thing as "technically zoned."  It's either a legal 2 unit or a legal 3 unit or a legal 1-4 unit dwelling.  If it's legal, but not conforming to the current zoning regulations, then you'll need a rebuild letter from the governmental entity that governs zoning.

Once you get the zoning nailed down, get a hard money loan and get the whole thing finished so you can get a DSCR loan (you're right, before they get more expensive). If the other two units are habitable, then rent them out and move on.