Best loans for improvement expenses?

Question

Hello,

First time asking a question here, inexperienced here so bare with me, here it goes: I am managing 20 unit multi family in Los Angeles that my parents and I own. Its an older building and there are some relatively big system upgrades / repairs needed.  Specifically electrical panel upgrades and plumbing issues that need to be addressed. The total cost is $55k - $60K. My question is: If borrowing is feasible option, what is the best way to go about this?

A bit of background info:

For the last couple years I've been renovating units with the cash flow from rents. I've also had to dip into savings a few times. The units are small one bedrooms and studios, but the building is old and often the improvements are fairly extensive: New drywall, flooring, ceiling. Repipe to copper plumbing. Rewire electric and install recessed lighting. New vinyl flooring, kitchen cabinets, appliances. New doors and windows, etc...

I would like to continue with renovating the units as there is turnover, however, there isn't enough cash flow to cover expenses, individual unit renovations, as well as the bigger improvements mentioned above.  And I also don't want to keep dipping into parent's savings.

Some Financial info:

This 20 unit property is paid off and has no debt against it. My last in depth appraisal is a few years old but it's value was about $3.8m. Since then I've done some considerable improvements but I actually don't know the exact current value.

We own two other income properties, both debt free.

The only debt my parents have is a home equity against their residence. That property is $1.6m but the equity line is for $440,000.

My first thought was to borrow more against their residence since, from what I understand, that will be the lowest interest rate. Is that correct?  Any thoughts?

Sorry for the lengthy post.

Account Closed · Answer

1st Congratulation on being free and clear. you or your parents or you and your parents are doing great and deserve gold stars. With the entire project only $55-$60K I would suggest you hire it done with licensed professional, Get several quotes and read about what people say about them on line. no cash up front etc. They will be in and out much quicker that you or I alone. Many of us understand at certain times in the beginning you have to do your own work to get started, build cash and equity You have passed that milestone a long time back. I'm just guessing here but I'll bet you do not set aside 10 - 20% for this type of maintenance - the really big things you have mentioned.  Also with a total rehab you should be able to increase your rent and get more stable residents. The huge ting about HELOC or even loc is you can pay them down with extra cash and get the cash back if you need it.  Bankers like you going up and down in loc or helocs with lower interest rates only increase the cash in your pockets. oh darn, all that cash in your pockets!  LOL

The Shorter the time the units are down the more time and you'll have cash flow to pay off the HELOC.  I'm assuming you parents loan is a Heloc and not a LOC. Since a HELOC lasts longer use the devil out of it and then get their home paid off!  I learned this when I held a unit down for a year be cause I would get to it soon,,,,  I looked at the money I missed and I could of had it rehabbed twice for that much missed cash! As we grow more affluent this becomes apparent, thus the set asides.

Happy investing

Lee Ripma · Answer

@Michael A.

@Dewayne Stiers made some great points about borrowing. You could also consider taking on debt for one of those paid off MF properties, maybe use that cash to do all repairs needed to all 3 buildings. Money is cheap on a cash out refi on a prop like you’re describing, likely under 4%.

Michael A. · Answer

Thank you for the reply.