Bought with cash, don't have enough left for big improvements

[Faith Woodward]

We recently bought a house that was built in 1950 and remodeled in the 70s for 78k cash.  The market value for a house this size in this neighborhood that has been improved is around 135k and it needed about 4k for basic aesthetics when we bought it. 

We are about to complete all the asthetic updates (caulking, paint, new vinyl, new carpet), but there are also some more major updates needed that we can't afford in cash right now: 1) $800 of necessary electrical updates to be safe, then additionally upgrading from 100 to 200amp service which will run 2-3k, and 2) there's no central hear and air. It has window units and two large, sufficient but ugly gas heaters.

We'd need about 11k total to finish these bigger things but I don't know if it's wiser to borrow to get it all done now, or wait and let the rental pay for itself.

I don't want to borrow against the house because of closing costs but that is an option.

Any input? Leave it with 100 service and window units and rent for a little less for now? Get more credit cards instead of taking out a small mortgage? Completely update those things before renting?

I realize we should not be in such a tight situation to begin with. We stretched outselves too thin when we decided to buy this place because it was such a good price for this neighborhood and would still bring about 12% ROI even if we spend 11k more, but here we are and I would love advice on how to move forward. Thanks!

[Thomas S.]

From my investment perspective you should mortgage it to the hilt. Having equity tied up in a rental property is only hurting your returns. Mortgage money is so cheap now that equity is dying a slow painful death sitting dead in a property and hurting your returns. After you deduct a opportunity return on the cash you have invested the property is earning you next to nothing. You may as well not waste your time owning a rental for what it is earning. You are saving about 3-4% and losing out on 10, 15, 20%+ that it could be earning.

Mortgage the property, invest some in upgrades and buy a few more with minimum down payments.