Property Investment Tips

How To Finance Property Improvements

When you acquire a fixer-upper, one of the biggest challenges is finding affordable ways to finance the renovations. Or if you have an existing property, sometimes costly repairs and remodeling is necessary. So what are the most affordable ways to finance? Let’s take a look at our options…

Credit Cards: All too often, we are tempted to max out our platinum card to pay for that new kitchen or bathroom. However, according to CreditCardForum.com (a credit card review portal) it rarely makes sense to do so. The interest rates are simply too high. Even the Home Depot credit card deal (which is specifically for home improvement projects) carries an interest rate up to 26.99%. So if you are thinking about putting it on plastic, think again.

HELOC Loan: A home equity line of credit is a way for you to borrow against the equity in your property. Since it is a secured loan, the APR is typically far less than a credit card will charge you. However since the recession, banks have been skittish about approving these types of loans since property values have fallen by so much lately. When they do approve applicants, they are giving out higher interest rates then they used to. Generally this is a good option, but the current economic environment makes it less viable option.

Mortgage Refinance: If you have a decent amount of equity built up in the property, right now this is probably the most viable option. When you refinance a property, you are able to tap the existing value (result from your payments or price appreciation) that can then be used for whatever you want, including renovations. Because rates are so low right now, this is probably the most affordable way to borrow money. However keep in mind that this only works if you have a chunk of equity in the property that you can borrow again.

Cash: If you’re able to, you may want to consider using cold hard cash to pay for the improvements on your property. This certainly beats paying credit card interest any day! However the one drawback with cash is that it ties up your money… money that you may want to use for a down payment on a new acquisition. So cash is usually a smart option, but it may not always be the best choice.

Whichever option(s) you are considering, remember it’s always a good idea to consult your accountant and other financial professionals for advice.