Renovating your rental property can significantly enhance its long-term value and curb appeal, not to mention boost your renter retention rates. In fact, upgrades like modernized fixtures, energy-efficient appliances, or purely aesthetic improvements can help you keep your rental property occupied, even in a competitive market. Of course, the cost of renovations can be daunting for many property owners and managers, mainly because the returns on that investment aren’t always immediate.
Securing the capital to make regular upgrades can also be difficult. The good news is that many innovative financing methods are available to help make your property improvements more affordable. Let’s explore ways to fund your renovations and achieve your property goals without straining your finances.
Home Equity Loans and Lines of Credit
While it isn’t exactly groundbreaking, one of the most accessible funding options for many property owners is (and long has been) a home equity loan or line of credit. Utilizing the equity in your property, you can often secure the funding you need for renovations. Different types of loans and lines of credit are available, each with its terms and interest rates.
For instance, many home equity loans offer features like a fixed amount and a fixed interest rate, while lines of credit may provide more flexibility and an interest rate that adjusts to market changes. The advantage of these loans or lines of credit is that they often have lower interest rates than other funding sources and lower payments due to more extended repayment periods.
Of course, the downside of these funding options is that you are using your property as collateral, so if something happens and you stop making payments, your entire investment is at risk, not just the amount you borrowed. For this reason, be sure to calculate the numbers and do your research before moving forward.
Renovation-Specific Loans
In addition to home equity loans and lines of credit, another option for rental property owners to finance upgrades is loans specifically designed for this purpose. For example, Fannie Mae’s HomeStyle Renovation Loan is a mortgage program designed to help property buyers and owners finance both the purchase (or refinance) of a single-family property and the cost of renovations in a single loan. This loan can be desirable for buyers looking to invest in properties that need improvements or owners who want to upgrade their homes without taking out a separate renovation loan.
Another specialized type of loan for property renovations is Freddie Mac’s GreenCHOICE Mortgage. This mortgage program helps property owners and buyers fund energy-efficient home improvements. The program supports the purchase or refinance of a home and additional financing for green, energy-saving upgrades.
Depending on the upgrades you plan for your property, these loans may offer a direct path to the financing you need for everything from structural improvements to energy-efficient elements.
Crowdfunding and Peer-to-Peer Lending
Creative funding options that have gained popularity in recent years are crowdfunding and peer-to-peer lending networks. These funding sources can provide alternative financing for rental property owners looking for smaller-scale financing or who want to go outside the more traditional mortgage routes.
Crowdfunding is just what it sounds like – setting up a proposal on a real-estate-focused platform that will present your project to potential investors. Depending on the platform you choose, your project may be marketed to users who wish to contribute to the project, or you may need to market your proposal yourself. Appealing to peer-to-peer (P2P) lenders specializing in real estate is a similar process. Specific online platforms are designed to help you set up a proposal with the pertinent details and then market it to potential investors.
Both options help property owners raise funds from a broad network of investors and can often result in flexible, usually faster, modes of financing. However, it’s essential to research your options carefully, taking note of any associated fees or other terms you need to be aware of.
Partnering with Tenants
Another innovative approach is to collaborate with your renters to finance property upgrades. In some situations, property owners may consider taking a collaborative approach and invite residents to help fund specific upgrades in exchange for flexible lease terms, rent reductions, or lease extensions.
These arrangements can benefit both parties in that your residents get the enhancements they want, and you can reduce the upfront costs of those upgrades – not to mention the higher property values that may also result. If this type of arrangement appeals to you, plan to set yourselves up for success with clear communication, transparency, and quality legal agreements.
Financing your rental property upgrades can feel like a chore, but you can make your renovations less of a burden with suitable financing options. Another way to make property upgrades easier is to have professionals like Real Property Management of the High Plains on your real estate investment team. Contact us online or call 806-553-7914 for details. We offer expert guidance and tailored solutions to help fund your property’s future Amarillo and nearby.
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