Best Way to Finance a Chicago Single-Family B & B investment?

[Heather Shannon]

Hey All,

I'm eyeing a property in a nice neighborhood in Chicago that is listed as a single family.  I think I can get it for $650k and would estimate putting about $150K into it to make it truly shine as an AirBnB (I'm already a SuperHost with my nearby condo).  The single family place is already zoned properly for the Chicago Bed & Breakfast license : )

I'll have about $65k as a downpayment. My credit is right below 740, but should be shooting up as I just paid off a big credit card balance.  Not sure how long that will take though . . . 

What do you think is the best way to go about financing this?

Currently I'm considering:

Option 1: Put 5% down and buy it like a regular old single-family that I'll live in.  Ask for a 2% closing credit and keep about $32K of my cash.  Maybe investigate the Home Depot line of credit (8% interest, up to $40K, but no idea how much I'd get approved for).  And just deal with $85k as my reno budget.  This is doable as the property doesn't have THAT much that absolutely needs to be done. But I think it will leave some things to be desired and eat into how much I can charge on AirBnB per night.

Option 2: Commerial loan for $800k, which would cover the purchase and construction.  The lender I spoke with today said I'd need 15% of that or $120K down and it would be about 5.75% interest rate.  Where do I get the other $55k for a downpayment though?  And I'm kind of screwing myself when I can get a 3.75% interest rate or something on the $650K with Option 1 above, right?  What am I missing here--do you refi after a couple years? The mortgage broker seemed to indicate you can't do it sooner than that.  But, I've heard of Guild Mortgage refinancing within 1 year of getting a hard money or construction loan.

Option 3: Attempt the BRRRR (Buy, Rehab, Rent out, Refinance, and Repeat). If I go this route, any recs for a private/hard money lender in Chicago? Will they be willing to finance the amount that I need given my limited down payment?

Thanks ya'll!  Looking forward to mastering this financing stuff as a newer investor!

Heather