Does the idea of breaking the bank to update your rental scare you? Rental upgrades can be pretty costly, but this article can help you determine the best ways to finance your renovations. There are several creative ways to improve your real estate game, but if you want to boost your ROI and resale value significantly, you can’t avoid renovations.
However, planning what you want to do is quite different from financing it. While you might get a good return on investment, some of these upgrades are pretty expensive upfront. So if thinking about ways to spruce up your rental is giving you a headache, stick around till the end. We’ll be helping you evaluate your payment options below.
Cash is usually the most straightforward option when it comes to financing anything. After all, you don’t need to fill out application forms or pay interest. Since you can bypass the proceedings associated with other forms of financing, you can start your upgrade project sooner. If you’re ready, check out this rent-ready checklist to see what you need to set up before putting your space up for lease.
However, churning out a large chunk of money to pay for a renovation can leave you strapped for cash. Thus, it would be best to keep in mind that cash is not always the best solution. Especially when you don’t have big enough reserve fun. Even if you were to save up till you had sufficient funds, it could take a while, and you’d have to upgrade your rental at a later date. In other words, cash could be the more convenient alternative if you’re not in a rush to get started.
Unfortunately, since saving up thousands of dollars can be pretty challenging, cash isn’t an acceptable solution for everyone. If you’re running low on liquid funds and would still like to proceed with your upgrades as soon as possible, then a personal loan might be right for you. Banks and other private lenders offer personal loans specifically for home remodeling or repairs.
Besides, several online sites offer personal loans at great rates. Are you worried about mismanaging funds or overseeing the renovations yourself? Don’t worry; there’s a simple solution. If you renovate a rental property, let your PM company manage the project. That’ll ensure the efficient use of your borrowed funds and save you some time and energy.
If you have a healthy credit score and your renovation is worth only a few thousand dollars, you could always opt for credit. After all, if you’re only making minor updates like changing your kitchen counters or installing bathroom vanity, taking out a loan might not be worth it. Since these are short-term projects, using your credit card offers you an interest-free payback.
This solution is especially great for investors with a good credit score and can afford to pay back quickly. On the flip side, if you fail to meet your next billing cycle, you could be facing higher interest rates. Hence, using your credit card could potentially be more expensive than other payment options.
Home Equity Line of Credit (HELOC)
If you’re comfortable using your house as collateral, a home equity line of credit might be the right solution for you. Alternatively called HELOC for short, it’s a form of financing that allows homeowners to use their house as credit. Thus, if your home has significant value, it could be an excellent way to get the money you need quickly. More so, thanks to appreciation and rising home prices, you could be sitting on more cash than you realize.
Apart from providing an easily accessible means of financing, there’s another reason HELOC has become quite popular amongst property owners. Surprisingly low rates are averaging around 5.61% for a 15-year fixed-rate loan. That’s impressive considering you can always borrow more money as you need it till you reach your limit. However, it’s essential to be prudent with your spending because you risk losing your home if you can’t pay it back.
Another financing option you could look into is a cash-out refinance. Rather than taking out another loan on a rental property that’s probably already on a mortgage, you could combine the two into one. In other words, take out another loan that covers your current mortgage and your renovation expenses. The advantage of putting everything under one umbrella is that the more considerable sum will attract a lower interest rate, which makes paying back easier.
However, that also means it’ll take you longer to pay off your loans since the sum would be larger. Thus, it would be in your best interest to carefully consider this option as it relates to your long-term financial goals.
After covering some of the best ways to finance your home renovations, we hope you have an idea of how to pay for the upgrades you want. Remember that no rule says you can’t use more than one solution. For instance, if you have significant savings, you could make a large deposit and use a personal loan or HELOC to cover the remaining costs. So ensure you weigh the pros and cons of each option before deciding.