What happens when your rehab goes over budget?

Have you sat down and doubled down on your numbers on a rehab project only to start tearing down walls and watching your budget skyrocket? What do you do when your investment property is falling apart more than you budgeted for?

There are a couple options/exit strategies that can be used.

1. If you are focused on buy and hold rentals (I focus on multifamily units specifically), you can take on additional debt via a private debt partner. You can obtain additional funding by assuming more debt. Hopefully, the rental income will cover that additional debt as well. Again… run your numbers.
2. Since we still own 100% of the equity within this property, we can go out and get an equity partner. It means that for the extra amount we need, we are going to give up a certain amount of our ownership. This allows you to maintain control of the asset, stay on schedule and collect rental income. The down side is that you have to share in this profit but I say 80% of something is better than 100% of a dead deal.
3. If you are in a great condo market, another option would be to sell off a unit. Instead of keeping the building as a whole, we can sell a part of the building. In Boston, we can convert a muti-family to a condo units and sell each floor. This option provides a great alternative to selling the unit outright because you still maintain ownership of the other cash flowing units and due to our sales prices, you could wipe out alot more debt. Even though people think it is a bad idea, it could actually be a good idea instead of losing a lot of intended profit.
4. The last resort, when you are a buy and hold investor would be to renovate the building and then sell it to the end consumer. While it hurts to sell the asset… if the cost to keep it, is more than the market will bear… don’t lose your shirt. Take your profits and use it for the next project.

What other creative exit strategies are you using?