How to get rehab cost if not flipping

Question

Hey guys,I am an investor that focuses on buy and hold, buy fix and hold, etc properties with good cash flow. I am trying to figure out a way to fund rehab cost if I am not getting bank financing or hard money loan.So this is the scenario:5 unit apartment building- Will be owner financed with a 20% down payment from me.I am needing about 20k for renovations.I am trying to explore different options to get this money as I am not fixing the property to sell more so to hold. I know that if I get from a private lender for short period of time and try to refinance that is one option, but what if I do not want to refinance. Is there an avenue to get a longer term loan for the renovation cost? What others ways have you all done deals like thisThanks for any help or thoughts

Deborah Burian · Answer

@Kevin White - it's hard enough to get licensed contractors to do appropriate quality work. We absolutely will not consider having a tenant do it.

Manolo D. · Answer

Kevin White You don't have enough equity to get any lenders to approve it. Either family and friend loans or apply for a personal loan. So what will you say to your lender if they want first position of the property, then the owner of the property -- it being owner financed -- will not sign anything?

Kevin White · Answer

Do any of you have any experiences of letting a tenant stay rent free or reduce rent in exchange for fix up services?

Kevin White · Answer

@Boyd McClean It would be something I could pay off overtime. 3-5 years preferably.

Kevin White · Answer

@Ron FlattThanks, that does make a lot of sense. of the 5 units 3 are rent able, 1 is currently rented. Each unit needs work to get rents to market rents. 2 of units rented would cover expenses per month so I could use profit from rest to continue to put back into the property. That would definitely work overtime but my only thought is how could I speed up the process. If not able to connect with outside money, putting cash flow back in the property to fix is what I would do.@Mike FletcherLol, no this owner rates are a tad bit better than the mob. Wouldn't want to refinance. Maybe in the future but not know as the rates and terms the bank will give wouldn't be as good as the seller finance and I am buying for the strong cashflow potential. I can definitely check into a line of credit though. Thanks

Boyd McClean · Answer

How long of a term are you looking for rehab money?

Account Closed · Answer

@Kevin White Well there is always the mob, but their rate sort of varies... if you really didn't want to refinance through conventional route. Of course there is a difference between don't want to refinance and can't refinance. There aren't many sources for strictly 'rehab' loans. If you were to find a bank willing to extend some sort of secured loan or line of credit, they may want a clearer title as this is being seller financed.

Ron Flatt · Answer

At this point and time, if you do not have a personal relationship with someone willing you may need to consider something like prosper or the like.... The main question, will it cash flow now and is it rented? I have purchased items that were far below my standards and improved them as rents came in. I had a duplex with garage apartment that was RUFF. After owning about two months one of the tenants moved out. I was able to refurbish the whole unit, putting in insulated windows, new floor covering and putting in central heat and air, and raised the rent $200 per month. I had to evict the unit next door and did the exact same thing. For the garage apartment, it is still a dog, but the rent is cheap, they cannot afford more, I have raised their rent $25 each year and have replaced the fridge and unstopped the sewer line. Remember, you do not have to do everything at once. When you bought the property, you have your maintenance and capital improvement budget in the offer. Each month spend a good portion on your upgrades. I have found tenants forget about the big re-furbish projects you do. They brag to others when you are consistently making improvements and making the buildings better over a period of time. I personally believe it makes more sense to let the tenants who are renting pay for your improvements, with their rents. They take pride in seeing their places spruced up and you do not have a large out lay of cash. One more thought, if you go in and do a 20K make over, your CPA may want to depreciate that out over the next few years. $1000 to 1500 per month, is taking care of deferred maintenance to keep them up, which is expenses this year to take off. (make sure you accountant sees it that way too, mine has not had a problem with it.)On a 5 unit, I expect you budgeted 1/2 of the income for expenses, and 1/2 for your profit and mortgage payment. You may have to step into your profit for a short while. If you bought it right you will be ok.