Financing Options for Rental Property Renovations

Are you renting out a house or an apartment? Even if you are just thinking about becoming a landlord and making it your extra source of income, you need to understand all aspects of this deal. This means you will not only get money from tenants, but you will also be accountable for the habitability of your house.

Once you sign a lease agreement with prospective tenants, you will be the one with an implied warranty to keep the house in a habitable condition. So, if any essential services aren’t functioning properly, it will be your responsibility to finance the repairs.

Here are the top financing options for rental property renovations for you to select from.

Main Financing Options for Rental Property Renovations

Depending on the budget of the landlord, there may be several financing options. If you don’t have enough savings, you can opt for an emergency loan to cover the unexpected expenses connected with renovations.

No matter which type of financing you select, you need to learn its pros and cons and understand the loan conditions. Learn about all the extra fees as well as the interest rate you will need to pay together with the loan. Calculate the total cost and think of how much you actually need to borrow. Maybe you can partially use your savings and borrow a smaller amount to repay the debt easier and faster. Here is what you can use:

• Cash-Out Refinance

The main benefit of this lending solution is that it offers you an additional sum of money to improve your home or make and property renovations. It also allows the borrower to refinance the existing loan or mortgage at a lower interest. The borrower will get the difference and will be able to spend the money for any purposes. The drawback of cash-out refinancing is that the borrower needs to have the equity in order to qualify for this cash-out process. In addition, you need to be careful with the upcoming payments as the number of monthly mortgage payments will increase due to a larger loan.

• Emergency Loan

This type of lending solution works great for those borrowers who don’t have enough savings to cover the renovations or any repairing for the rental property. If you haven’t thought about such unforeseen events or just don’t have any cash at the moment, you can opt for an emergency loan. There are various finance-related service providers that work online and provide emergency loans to cover any expenses. Always read the terms and conditions of the loan before you sign any papers so that you fully understand how much you will need to pay off in the end.

• Home Equity Line of Credit (HELOC)

Generally, landlords may borrow up to 80% of the value of their property against the equity they have built in their property. This lending solution offers quick cash to fund the renovations in your rental property. As it was mentioned in the Tax Cuts and Jobs Act of 2017, the interest on HELOC is tax-deductible. The only disadvantage of taking out a HELOC is that you may face foreclosure in case you fail to make regular payments as the money is lent against the landlords’ property.

• Borrowing from Friends and Family

If neither of the above-mentioned options seems suitable for you, you may choose to borrow from a friend of yours or a family member. It can become a great alternative way of financing the renovation project if you know a person who has the means to help you out. It is beneficial as you won’t need to pay extra fees or interest rate. Also, your property will be protected from possible foreclosure or any other risks. On the other hand, you can risk your personal relationships. If you fail to pay the debt on time, your relationships with the lender can fail as well. So, be a responsible borrower.

Benefits for Landlords

Whether you have enough savings or need to take out a loan for the rental property to fund the repairing process, investing money in this project will definitely bring you lots of benefits.

First of all, you will follow the requirements of the lease agreement providing clean and safe place which is suitable for living. Secondly, your home will increase its value and if you do everything correctly it can boost your return.

If there is no major damage and you don’t know where to start the renovation project to improve the living conditions, a great way is to look at a similar rental property in your area. Make certain that your renovation project is suitable for your neighborhood and for the people who will afford living there.

All in all, these are the top financing options for rental property renovations. Choose the most suitable option and improve the living conditions so that your property increases its value.