Whether you want to do major structural renovations or just minor ones, there are a lot of options on how to finance renovations that your tenants would surely love. Choosing the right apartment building loans or alternative options will also depend on the type of renovation that wants, the estimated cost of the renovation, and your financial circumstances. This article will help you get a glimpse of the different financing options that you could choose to suit the renovation that you and your tenants would enjoy.
Before we go into the options of financing property renovations, you must consider these things first.
1. Plan your renovation project
Before anything else, you must first consider what type of renovation your property needs. And what better way to do so than to ask the tenants. Talk with them and ask them what needs to be repaired or enhanced in the property. You can also offer suggestions as to what you deem best for the property.
After you have determined what are the remodeling or enhancement needs in your house, then you start out by getting an accurate estimate of the project cost. When you have already determined the costs, then you could determine what needs to be prioritized and what could be extended for later dates.
2. Get estimates
You can tap a trusted contractor or trusted company to help you get a good estimate. Explain all the parameters of the project, give them the details, and find out the estimated costs of the project. You can also tap other companies to do the same so that you can have a good comparison regarding the average budget.
Financing Options for Renovations
Now that you already have a good estimate of the possible cost of the renovation, let us determine how you are going to finance renovations that your tenants will enjoy. Here are some of the options:
If you have enough cash to sustain the costs of the renovation, then well and good because cash is the simplest and safest payment option. You don’t need to fill out forms, undergo appraisals, and wait for approvals. Plus, you will not be thinking of future obligations that you may have with other financing options.
One drawback though is that the cash that you will use to compensate for the cost could have been earning interests in other investments. Choosing other financing options while investing your money in a higher-return venture might cost you a smaller amount in the long run. In addition, loans use for home improvement are tax-deductible while paying it in cash isn’t. To check if this is a viable option you can tap a trusted financial adviser to help you out.
2. Renovation loans
Renovation loans also called construction loans can be used to finance renovations of your property. Anyone who is interested to do a big renovation of a property should see this as a practical financing option.
These loans are usually short-term and can only apply for the time it takes for the completion of the project. This means that the borrower can only borrow what they need. These are usually distributed directly to the contractor in segments called draws. The main issue is that it usually charges higher than the usual average rates.
3. Hard money loan
This is another great option for financing renovations on your property. Unlike other financing options that look into your financial status and credit score, the hard money lender will approve your loan base on the collateral you can provide. If you have other valuable property that you can use as collateral, a hard money lender will likely work with you.
Usually, these lenders are willing to loan up to 75% of your property’s after repair value or ARV. A drawback though is that these loans are usually short-term and have higher interest rates than other financing options.
4. Home improvement loan
You can apply for a home improvement loan to finance your renovation project. There are two special loans that can be used for home improvement.
a. Home Equity Line of Credit
In this loan, the property acts as collateral. The amount that you can usually get is typically set at 75% to 80% of the appraised value of your house. Also, your ability to pay and credit history will be considered in the amount of loan that is approved. The interest rates for a home equity line of credit usually varies.
Once you have already set up the line of credit, you can easily tap into these funds whenever you need them.
b. Home equity loan
This type of home improvement loan usually offers fixed-rate and fixed-term payments. Some lending institutions offer up to 80% to 100% of the appraised value of your property. Again, like the home equity line of credit, your ability to pay and credit history will also determine the equation.
5. Personal Loan
You can also use a personal loan to finance your proposed renovation. This type of loan is much easier to qualify. Plus, you get to have the money quickly than other financing options.
You can also apply for your personal loan online and choose your own terms. However, you should also take note that personal loans tend to have higher interest rates. Thus, it is advisable to use them only when you are certain that you can pay back the money according to the time frame that you have arranged.
6. Refinance your mortgage
You can also try to refinance your mortgage to get the money that you need for improvement purposes. You can refinance your home with a lower interest rate or you can also have a cash-out refinance. These two options will help get the extra amount of cash to use for the renovation.
Regardless of what financing option you will use to renovate your property, it is important to stay within your allocated budget as much as possible. It is also best to consider your tenant’s needs and wants and also take into good consideration their comfort during the whole process. It is also best to talk with them before you make such a huge decision that will affect how they will live in the coming days.