Rookie Reply: How to Fund Rehabs and Renovations

Ashley:
This is Real Estate Rookie, Episode 92. I am Ashley Kehr and I’m here with my co-host, Tony Robinson. And Tony, I tried really hard to refrain from saying Niner, and I’m going to do a really great job of not saying Niner for the whole nineties episode.

Tony:
I wouldn’t expect anything else, Ashley, like I was actually kind of looking forward to hearing that Tommy Boy reference every time we record these episodes.

Ashley:
So what are we going to be talking about today on the Real Estate Rookie Reply episode?

Tony:
All right, so today’s question comes out of the Real Estate Rookie Facebook group, which again, if you guys haven’t joined yet, you definitely should, about 30,000 people in that group right now. But today’s question comes from [Shantay 00:05:41] Long. And Shantay’s question is, “We’re about to close on a duplex and it’s going to need anywhere between 6,000 to $10,000 in repairs. What are some options for funding this rehab?” So, Ash, I’ll let you go first. And I’ll kind of chime in with my thoughts afterwards.

Ashley:
Okay. The first thing I thought of when I was reviewing this question was credit cards. So what did you say it was? 6 to 10,000 they’re looking to spend? With that amount and you could easily get a credit card usually for that amount of money. And there are so many credit cards out there that will do 0% interest. So what this means is you start buying materials, supplies with the credit card, Lowe’s, Home Depot, wherever your hardware store is to get your materials or even online. You use the credit card to pay and the credit card will usually give you 0% interest. So all you will have to do is make a minimum payment every month, which can be, if you have $10,000 on there, depending on the interest rate, you could probably be paying $90 a month as the minimum payment towards that card.
So what your strategy here is to get a card that has that 0% interest for as long as you’re going to be doing the rehab and until you can refinance. So for example, some of the cards will do it for 18 months and hopefully your rehab and your refinance is completed by then, so that you can pay off the credit card before you’re actually charged interest on those payments. And you’re just making that minimum payment, which is actually going towards your balance and not towards interest. So I think that is one of the greatest tools that you can actually use. And you can find the 0% interest credit cards on the business side or in your personal name too.

Tony:
Yeah, that’s great advice, Ashley. Especially at that dollar amount, 6 to 10,000, like you said, it should be not too big of an obstacle for most people to get approved for something around that loan limit. I think something else to consider and Shantay didn’t really share what the potential ARV or the purchase price of this property is. But at 6 to $10,000, you could also try and borrow money from a family member, from a friend and say, “Hey, if you loan me $10,000, I’m going to fix up this property. Once it’s done, I’m going to be able to pull out $40,000, whatever the number is. And then I’ll be able to give you a return on your money.”
So putting together a nice little business plan about how much the repairs are going to cost, what you think the property would be worth, how much you’ll be able to pull out and then kind of shop that around to some friends and family in your circles and see if anyone might be willing to kind of partner with you on this deal. I’m a big proponent of partnerships. I’ve actually never structured them as like a private money deal. Most of mine have been equity partnerships, but private money is definitely a route to go down, I think, for something this size as well.

Ashley:
Yeah. And with the credit cards or however you’re going to pay for it, sometimes you can’t. A contractor is going to want to be paid by check or cash, or you’re not going to be able to finance per se the payment you’re making to them. So one thing you can do, if you are using a contractor, is ask that you pay for the materials. So even if they go out and purchase them, they’re using your credit card or you’re going out and delivering them to the site. However, that will work, that will help cut into a huge amount of that cost for the rehab is if you’re covering that and then possibly you can come up with the other percentage by borrowing from family members, saving money, or you could even do a loan from your 401(k) or a retirement account too.
So those are a couple different things you could do. And just to add on to what Tony said about bringing on a partner, actually, I’ve done that. When I rehabbed the liquor store building, I brought on a partner and I bought the property and he was the rehab guy. I helped him just to learn, but that was where I needed somebody to help me with the rehab and bringing on a partner was the right choice. And I saved a ton of money by not having to pay contractors, but I did give up equity in exchange.

Tony:
I guess the only other thing that I’d add, and we talked about this in the show before, but you can also get a line of credit, not just against your 401(k), but if you have any holdings in the stock market. Usually there’s a minimum. I think it’s like a hundred grand in most places, but if you’ve got a hundred grand in the stock market, you can typically get a loan against that and the interest rates are really, really, really, really low compared to credit cards or other kinds of debt. So there’s lots of options, Shantay, and hopefully some of the answers that Ash and I provided helps get you rolling in getting this property done and this deal closed.

Ashley:
Well, thank you guys so much for listening to this week’s Rookie Reply. Make sure you join the Real Estate Rookie Facebook group and check us out on YouTube and subscribe to the channel. We will be back on Wednesday with another episode of Real Estate Rookie. I’m Ashley at Wealth from Rentals and he’s Tony at Tony Jay Robinson on Instagram.