Rental update now or wait

[Kristen P.]

When should you update a rental property if you don’t have the cash to do so at the time of purchase? Could someone provide some advice on borrowing extra money from the bank in the mortgage to fund the Reno. For example, borrowing 115,000 but purchasing for 100,000?

My husband and I are considering buying one of my fathers multi family properties as he no longer wants to put in the work and time. The location is decent , a block to the left is a nice neighborhood , a block to the right , not as nice. Currently he undercharges for rent but the units have not been updated in a very long time and the downstairs tenants smoke inside and have essentially trashed the place. My husband is in the trades so he can do a lot of work himself but we are estimating the total reno cost for the downstairs unit and the outside to be less than 15,000. The upstairs unit is currently renter to a quiet elderly lady who is happy with everything except the downstairs tenants so we would like to keep her there and save her rehab for another time.

If we were to purchase , we need to find the best way to approach the rehab. Do we let the tenants stay , raise the rents slightly and let the account build until we have enough to rehab ? Or , do we borrow extra from the bank , rehab , and get new tenants. Our issue is that we currently do not have enough on hand cash to perform the renovations right away but we want to be able to use this property as a BRRR to get our next one.

If we rehabbed downstairs we would essentially be able to raise rent $250/mo based on other rents in the area.

We currently have a multi-family that we rehabbed and have rented out but we are “saving” that refinancing option for a future project that will be a complete gut.

We are also open to holding the note and purchasing it that way but we still need to discuss that with my parents and see if that’s something they are comfortable with . We don’t love the idea of holding the note with a family members property.

Thoughts ?

Thanks so much !