How to pay for repairs

Question

Hi Everyone,

I'm a newbie, and am investing out of state.  We are close to closing on our 2nd property, and are using more of our savings to pay the downpayment and closing costs.  During the inspection, we found the the property needs a new roof (4k), some other repairs of siding and windows ($600), needs some plumbing work (about $450), and some electrical ($700).  And today we got the radon test back, and now we need to do radon mitigation as well (another $1200).  We could just patch the roof for about $500 and it may last another two years.

Anyways, bottom line is we don't have a ton of money saved up to do these repairs all at once.  But we also want to get the property rentable asap to get the cashflow going.  We are on a time crunch for closing and don't have time to pursue a renovation loan.  Anyone have ideas about other ways to pay for the costs of repairs?  Are there separate short term types of loans we could pursue?  We think we will have all the money we need for the repairs within the year...just not right this minute.

Any productive advice is appreciated.  Please abstain from reprimanding me for getting into a deal without having sufficient funds saved up...I already am feeling dumb for that!

Alex Franks · Answer

Just my advice do not patch anything fix it 100 % correctly or expect to pay twice as much done the road.  This is why we have problems to many folks try to get by with lack luster repairs. If youa re not going to fix everything correctly you should not be buying these homes. I mean this 100 % as I see this over and over in this business. Keep in mind your going to be putting some on in that home to live. Would you want your home fixed 50 % of the way and keep living there.

Make sure with all repairs added in correctly and not fudging the numbers does the deal still make sense.  If you do not have money to fix it 100 % completely this is not a deal and yes your are correct you should not be in it. This is going to be an ongoing cash drain for you. Unhappy tenants , unfixed homes, not a win win for every one.

I see to many folks buy houses and think they can fix later. Yet try to rent it out and get top dollar.  This is not a good way to invest or set your self up for long term success In this business.

Sorry to be honest but I'm not one to sugar coat things.

This is like buying a car that I know the motor is bad and I don't have the money to fix it . I am just hoping it last long enough to get some miles out of it till then.

I'm not knocking you but if you want to give money away there are other ways to do that. This will turn into a money pit. At the same time I did this years and made the same mistake. So I'm speaking from experience.

Alex

Jonathan Watson · Answer

You could research peer-to-peer lending at www.lendingclub.com or www.prosper.com -- personally I've never used them, but I have known folks who've used them for small loans for something like what you need.

Stephanie Medellin · Answer

Hi @Samantha Soto.  Sorry to hear you're finding so many issues with the property.  I just suggested this in another post, but what about applying for financing with the vendors who will be supplying materials and /or working on the house?

Home Depot offers a project loan up to 25K.  I'm sure some smaller contractors may offer financing, although probably at high interest rates.  Maybe they have some incentives like no payments for 90 days.

If these issues are preventing the loan from closing, maybe you'll have more leverage with the seller to get these issues fixed for you.  I would think a leaking roof would be an issue for your loan to close, but that would just add to your problems.

Aaron Vergason · Answer

Hey! Congrats for getting into a second deal!  That's not easy.  If all of the needed repairs were caught during the due diligence period/ inspection, how about requesting the raise the sale price and get that extra money back at closing.  This way you can finance those capitalization costs.  Do you have more info on the deal (What is the asking price or what is the price you have it under contract?)  I don't know about your area, but where I am, I would never do a radon test for a rental house.  without that system it looks like you should raise the sale price by $6,000 and get that back at closing.  If the value of the house can cover that extra, then it's a good deal for you!  You can call it a repair reimbursement at closing.

Otherwise you will have to get the house a lot lower so you save $6,000 from your down payment and make the repairs out of pocket.  at 20$ down payment you would need to request a 30k reduction in the price...

Andrew Syrios · Answer

Are you getting a loan on the property at all? Could you ask the seller to take back a small loan or 2nd on the property depending on the situation? Someone mentioned the Home Depot loan that would be worth looking into, but you could also try micro credit, like Prosper.com as it sounds like you only need about $7000. Or do you have a family member or friend that could loan you the money over the short term?

Samantha Soto · Answer

Thanks!  We already got the seller to drop the price from 55K to 52k, and they will be paying $1000 of our closing costs, which helps keep some $ in our pocket.  For some reason, due to it being an investment property we were not allowed to ask for more than 2% in closing costs.  I am looking into a personal loan from my brother for 5k until the end of 2016.  Also, we may just do the bare minimum necessary repairs for now.

@Aaron Vergason I guess due to the area where the house is a radon test was recommended.  Radon is a big issue in the area, and as landlords we are liable if anything happens to the tenant due to radon and we failed to test.

Izzy Zehner · Answer

@Aaron Ferguson can you talk more about raising the sale price and then getting the money back? I haven't heard of that before, but am interested in how that works. Wouldn't then that raise the basis for property taxes?

@Samantha Soto congrats on the deal! I'm interested to see how you work out these issues. I don't have any great advice except maybe you could roll some of these costs into your mortgage? Or get the seller to make the repairs if that's possible. Wishing you luck!

Bill Devola · Answer

To my knowledge there aren't loan products that will help you do this (if you find one PM me!).  It used to be HELOCs.  The actually still exist I believe, but they are stricter on own occ status and condition and equity requirements.  Only thing I can suggest is personal, unsecured debt.  Like a credit card.

There are also direct lending sites on the net that could get you funded for this small amount if your credit is up to snuff.

How to pay for repairs

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