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

[Nick Patterson]

Hi Heather

Nice to see you on this site.
My personal opinion (not always the correct one) is that Real Estate is all about leverage.  Using other peoples money is the name of the game.

If your numbers work and you have good debit, meaning after all your expenses you are still turning a profit I would go with option #1 which I'm assuming will give you a 30 year lock?