203k loan or HELOC ????

Question

Hi I hope this is the right place to post this question.

I own a 2 family mother daughter type of property. In the front property there are 2 apartments, and in the back yard the second building has 2 units.

The property in the back needs complete reconstruction. No one has lived or occupied the property since 1960's. There is no c of o because it was built prior to 1920 but the city has it listed as 2 buildings on 1 lot.

Now i went to a commercial bank and they basically said I will need an architect to draw the plans and get the ok from the city to qualify to get the 203k. But if i pay for an architect to do that I can just use the HELOC to do the project.

anyone ever deal with this or have some tips?

Will Bert · Answer

Hi BP here is my current situation a big bank offered me an HELOC not enough to fund my project but enough to pay an architect to draw plans and then go for a 203k loan. I still didn't sign for the HELOC.

Will Bert · Answer

Thanks Mark Sidorczuk I agree with you it was just that one contractor said because there is no c of o because it was built prior to 1935 the lot is grandfather in and didn't need to have a c of o ...but I feel that what you are saying is best because once I do put tenants in the back if they decide not to pay and I need to evict that could be a huge problem or hold up in court...

Now which would be better to go with a 203k or HELOC?

Mark Sidorczuk · Answer

@ Will Bert the scope of work your talking about will require a permit no matter what type of financing you get. You'll need dwgs to get a permit. If you build without a permit you risk fines and will NOT get a Certificate of occupancy.  Also your insurance company will not cover a building without a permit and when you sell the property you won't be able to market it becuase the addional space is not legally built. I'm not sure why a lot of people feel that it's acepable to avoid/break the law and not get a permit. The permit process is in place to protect the owner and occupants. Yes I know the inspectors are a pain and yes an architect will cost you but this is the price for a professional investment. Sorry to rant on the permit thing.....it gets me all fired up! Good luck on your project!

Will Bert · Answer

Thanks for the reply @Carl Carson. The property in the backyard only has 4 brick walls. So it needs a roof, foundation work,brick pointing,complete plumbing,complete electric,. My plan is to make 2 lofts back there. The thing is since there is no c of o in the future if i sell will there be a problem or if i try and get a c of o after the project is done and the DOB says nope..With HELOC I can get the job way cheaper than going with the architect, but with he architect i can be sure to get my paper work for the future. Also without permits someone can call mid-project and DOB will shut me down. By the way I don't plan on ever selling.

Carl C. · Answer

I'd say it depends on how quickly you need to close on the property. Hiring an Architect do draw up plans will add a lot of time and $$. What kind of reno are you planning? Just upgrading what is there or gutting and reconfiguring the space? If you are leaving walls in place and just upgrading/painting I don't see the need for an architect and I'd probably lean towards a HELOC then refi into a tradtional mortgage after the reno is complete. I suppose it depends on the details of your deal though.

Will Bert · Answer

your right I'm just looking at all the hoops the 203k loans make you go through plus with no c of o the city wouldn't really have to be involved..But i do like that concept of using other people money..@Marcus Ware

Marcus Ware · Answer

If I'm understanding you correctly based on the concept of using other peoples money wouldn't you rather not touch your heloc and just use the 203k to fund the project?@Will Bert