Financing Your Rental Home Improvement Projects

In the increasingly competitive real estate market, it is more important than ever for serious investors to find ways to make their properties stand above the rest. Renovating your rental property can be a lucrative move that can increase the value of your property and the amount of money you are able to profit from it.

But the prospect of a self-financed home improvement project can be a daunting one, particularly when you’re looking at your bank balance. As the saying goes, you have to spend money to make money-but where will that money come from? With all the different options available out there, it’s easy to get overwhelmed. But don’t let that stop you from making your rental property everything that you know it can be! Read on to find the financing option that is right for you.

Where to Begin?

Before diving right into all the projects you have planned, you first need to ask yourself if it’s the right time to start. Take a look at your personal finances. Does your credit score need some work? The higher your credit score, the better interest rates you’re going to get on any loans or lines of credit you might use for your renovation. What do your cash reserves look like? Renovations will cost you any income you’re used to getting from renters on the property. And are you prepared in case renovations take longer than expected? No matter how meticulously you plan, there’s always the chance of an unexpected delay. Having a backup reserve is never a bad move.

Remember, the goal is for you to come out on the other side of your self-improvement projects better off than when you went in, which means the benefits need to outweigh the risks. A property manager can help manage the project.

But if you’ve gone down the checklist and have determined that you are ready to get that renovation off the ground, then let’s take a look at the options available to finance your projects.

Cash or Credit?

If you’re able to pay for your renovation out of pocket, that is excellent. It is generally better to avoid debt if you can. But if you need a little extra help, a credit card may be a good option.

Ever heard the phrase “zero-percent interest for the first full year”? If you’ve ever seen a car commercial, the answer is yes. But zero-percent interest can mean more than just getting that Honda Civic. If you know that your project isn’t going to take that long, or cost a substantial amount relative to your finances, consider using a credit card that offers you a period of zero-percent interest, and then pay it off in full before the interest kicks in. This will save you money, and the approval process is fairly quick and straight-forward.

Loan Options

But what if you don’t have the cash, and a credit card is too limiting? Lucky for you, banks offer several rental home improvement loans to assist you. Home improvement loans are special because they are used specifically to finance renovations to an existing property. Rental home improvement loans are not for everyone so it’s important to do your research and find the loan that best matches what you want done to your property, as well as the one that best matches your strengths as a borrower.

Hard Money Loans

Are you trying to get your renovation done quickly? Or maybe your credit isn’t where you want it to be just yet? Then a hard money loan might be for you. Hard money loans are backed by the property, not the investor, and are fast. If you need a speedy turnaround for approval, and a quick release of funds, a hard money loan can provide it. But be sure to be careful—these types of loans come with higher interest rates and have harsher consequences for defaulting.

Investment Property Line of Credit

As mentioned above, credit cards are a viable option in terms of financing your project. However, if the idea of credit appeals to you, but a credit card doesn’t offer you the range or time needed to complete your project, then you might consider applying for an investment property line of credit.

Unlike a card, this type of credit can provide you with more flexibility. Investment property LOC can have lower interest rates than other types of loans and grants you the time needed to complete your projects without having to immediately turn around and repay your debt in full. Also, like a credit card, you’re only charged interest on the amount you have drawn, and you may receive tax benefits on paid interest. Be aware that getting approval for an investment property LOC requires qualifications that may be stricter than those of hard money loans or from private lenders.

Federal Housing Administration 203K

An option if you are going into your project with a laser-focus—meaning you know what you want done, when you want it done, and how much it’s going to cost you—is a Federal Housing Administration 203K loan. Closing on a FHA 203K loan can get you tax benefits, excellent interest rates, and immediate equity. The application process can get lengthy, however, so be prepared for paperwork. You will need to meet the FHA’s eligibility requirements. And once you’ve closed on your loan, be ready to get renovating. This type of loan puts your project between time constraints, so you must be willing to make quick decisions and put in the work to make sure everything is completed within six months of closing. You can also use software especially designed for real estate to help manage your property.

Content Provided By RentSimple – property management resources


The real estate game is a hard one to play, especially if you want to stay competitive. But the good news is that you’re not on your own-. knowing your options and getting an idea of what direction you want to go in terms of financing your self-improvement projects is excellent, but when it comes to the heavy lifting, a property manager can help manage the project.

Additional Resources: