Construction Loan vs. Home Equity Line of Credit

[Alan Devey]

My partners and I purchased a 2 flat a few years back and to say we were strapped for cash is an understatement. That being said, we managed to renovate the 2nd apartment unit, clean up the first floor, and duplex down to the basement to add a bedroom and bathroom.

We still have a fair amount of work to do. We need update the siding, build a garage, replace the windows, and update the 1st floor kitchen and bath.

Here are the stats:

Construction costs - $50,000

Purchase Price - $225,000

Current Appraisal Value - $375,000

Post Construction AV - $440,000

Current Loan Amount - 195,000

Rental Income - $2,800

Mortgage + Taxes + Insurance - $1650

Liquid Cash - $10,000

My partners and I want to get the remaining projects off our plate and are trying to figure out the best way to make it happen. We are planning on refinancing and paying off the loan and pulling out additional equity once completed. 

Here is our question, in our specific situation, what is the most efficient way to leverage our equity to complete the project? We are exploring a construction Loan and home equity line of credit.

Looking forward to your comments.