Minimizing Late Rent Payments

 

How to Minimize the Risk of Late Rent Payments

On-time rental payments are the hallmark of a healthy landlord-tenant relationship. When your tenant pays their rent on time, it is an indication that they are financially stable and respect the terms of their rental contract. In contrast, late rent payments can indicate a number of potential problems, from one poorly timed paycheck to a slippery slope of financial instability. 

Late payments also pose a challenge for landlords when maintaining a steady cash flow and a good relationship with your tenants. No one wants to have to chase down rent, so what can you do to minimize the risk of late rent payments?

 

Accept a Wide Range of Payment Options

First, make it easy for your tenants to pay their rent in whatever way is most convenient. When rent can be paid the same way youre tenants handle their other bills and online shopping, it is more likely to be taken care of during each person's usual monthly routine. However, as we live in such a diverse and digitally hybrid world, each person's preference and routine may be a little different.

Popular payment options include:

• Credit card
• Debit card
• Digital wallets (ex: ApplePay, GooglePay, PayPal)
• Paper checks

Your best bet is to set up a tenant portal that accepts online payments using a conventional payment processing service that will be familiar to anyone who shops or pays for services online.

 

Enable Auto Payments

Auto-pay is a life saver for the busy and absent-minded. Many tenants don't mean to miss rent, but life is busy and monthly tasks are far apart. Auto-pay enables an automatic transfer from the tenant's bank account or credit card every month. 

Essentially, auto-pay is a rent subscription. Tenants that have many subscriptions or are familiar with auto-paying bills often prefer to put their rent on a timer instead of remembering to pay it manually each month.

 

Screen for On-Time Payment History

It's also important to select tenants with a positive payment history. When choosing future tenants, select applicants that appear to have a financial history of on-time payments and well-managed credit accounts. These are indicaators that a person is generally able to pay their bills on time through both financial security and personal responsibility.

 

Clarify Late Fees and Penalties

Let your tenants know that there are penalties for late rent payment from the outset. Include late rent fees in the lease contract and mention the late fee when you go over the terms with a new or prospective tenant. There's no need to stress the issue, but ensure that your tenants see and understand that a late fee or certain penalties will be enacted if they are X number of days late with the rent on any given month.

 

Provide a Small Grace Period

While a late fee can discourage careless late rent payment, it's also helpful to provide a grace period. A grace period is typically a few days after the rent date in which a payment can be late without penalty. Grace periods are useful to maintain good relations with well-meaning and responsible tenants because, as we know, delays happen.

• Some tenants are paid on a specific day of the week, which doesn't always align with the first of the month.
• A tenant may be paid on a bank holiday and unable to cash their check until a day or two later. 
• A server error may delay or fail to send their payment.
• A tenant may forget everything during a personal emergency or special holiday until next Monday rolls around.

The typical grace period is 5 days, but you can adapt your grace period based on what seems practical.

 

Send Reminders to Forgetful Tenants

Landlords have also had some success reminding absent-minded tenants a few days before rent is due. You can easily set up an automated message routine that will send an email or text message to tenants to help them remember to pay on time. This method is particularly useful when renting to students and other young populations who may be new to renting and responsible monthly routines.

 

Manage Every Tenant's Rental Schedule with Leaf Management

Reducing the risk of late rent benefits from a comprehensive approach and, sometimes, a personalized solution. The more properties you own, the more important your late rent prevention strategy becomes. Leaf Management can hel you balance the needs of your operating balance with individual tenant payment schedules. Contact us to explore property management services.

Property Issues to Expect Amidst Winter

 

The 7 Biggest Rental Property Problems You'll See in Heavy Winters

When you own a rental property in a wintery climate, be prepared for winter maintenance calls. Tenants rely on the tenant-landlord partnership to help keep the property warm, safe, and in livable condition despite the winter's best efforts. Heavy winters involve deep layers of snow, ice, far-below-freezing temperatures, and strange moisture issues. 

Hearty winter-region tenants will often be able to navigate many of the routine tasks like keeping the gutters clear and shoveling the driveway, but there are a number of tasks and maintenance issues that you'll want to address and plan for as the property owner.

 

1) Not Enough Hot Water / Water Not Hot Enough

Water heater troubles are a known issue in the deep winter. As the ambient temperature drops, water heaters struggle to get the tank to hot temperatures. Cooler air temperatures around the tank and colder water entering through the intake pipe both make up part of the problem.

If your tenants call regarding not enough hot water or their water is not hot enough, there are two likely solutions and enacting both is a good idea.

• Flush and service the water heater - send a maintenance service to flush, clean, and tune-up the water heater. This can help you pre-empt leaks, pilot light problems, and temperature sensor calibration issues as well.
• Wrap the water heater - Apply a special insulating blanket designed for water heaters to help keep the water warmer and safe from winter temperatures.

 

2) Plumbing Problems: Clogs to Burst Pipes

Cold weather often brings plumbing problems. Clogs are common because materials tend to congeal in the cold and are more likely to form a clog instead of flowing away. In extremely cold weather, pipes can even burst when the water inside freezes.

You can reduce the risk of both problems by insulating the pipes in your rental homes, especially in unheated spaces like the basement, attic, and crawl space. But it also helps to keep a plumber on call for winter clogs.

 

3) HVAC Heating Problems and Cold Drafts

Cold drafts, not enough heat, or the HVAC heater not working are crucial problems for your rental property during a heavy winter. It is your responsibility to keep your tenants warm with a working heating system.

For cold drafts:

• Caulk up the windows
• Reinstall weather stripping
• Seal cracks
• Add insulation to the attic
• Have the HVAC air-balanced

For HVAC heating problems:

• Send an HVAC service in the autumn before the hard winter sets in. Have them clean and tune up the heater.
• Be prepared to send an emergency heating repair service at any time, day or night
• Provide supplementary heating like firewood and battery-powered blankets during heating or power outages.

 

4) Leaks from Roof to Foundation

Heavy winters mean tons of snow and ice, which can lead to unexpected moisture problems. During the daily light melt and re-freeze cycle, puddles can cause problems for your foundation, while piled snow can cause problems for your roof.

Make sure your gutters, roof, and attic are in top form and ready for winter before the snows, and take steps to protect your foundation from winter moisture seepage. Foundation coatings and barriers are a popular choice.

If a maintenance emergency occurs mid-winter, have reliable contractors on-call who can do winter repairs.

 

5) Fallen Tree Limbs

Heavy snow can also wreak havoc on your trees. One of the most disastrous problems for a rental house is fallen tree limbs broken by heavy snow. Tree limbs can do serious damage to your roof and siding depending on the size and placement of the limb.

Trim trees so they don't overhang the house during warmer seasons to prevent fallen tree limb damage. If a tree limb falls during the winter, call for emergency repairs depending on the type of damage that was done.

 

6) Blocked Fireplace Chimney

If your rental house has a fireplace, you can bet that your tenants will test it out in the winter. Fires are cheerful, warm, and add to holiday cheer. But first, the chimney needs to be clear. From a hard-to-see flue control to birds nesting in the chimney, don't be surprised if tenants call to request maintenance so the fireplace works correctly.

If you're lucky, your tenants will know how to check before they light the first fire.

For homes with a fireplace, consider scheduling a chimney inspection and provide a quick guide to working the flue before the temperature plummets too far. Providing seasoned firewood can also help encourage only burning clean and advisable fuel.

 

7) Outdoor Wood Rot

For homes with a deck, porch, balcony, or wooden fence: watch out for winter wood rot. The moisture and cold combined can acellerate wood rot in the winter, leading to loose railings and crumbling deck boards. Sealing your deck and other outdoor wood assets in the summer is the best way to prevent the risk of outdoor wood rot during a heavy winter, but you can also advise tenants to regularly sweep the deck and clear heavy snow from the balcony.

 

 

Handle Winter Rental Maintenance with Leaf Management

Preparing a rental house to keep your tenants safe through heavy winters requires careful planning, and handling winter maintenance emergencies is a must. Gain the benefit of a team that understands winter climates with the help of Leaf Management.

Power Outage Guide: Keeping Your Tenants Safe in the Winter

What to Do If Power Goes Out for Your Tenants in Winter

As a landlord, you are responsible for the safety and wellbeing of your tenants inside their home. This includes power outage situations, especially in the middle of a Massachusetts winter where your tenants could be in danger without heating. What should you do if the power goes out for your tenants? What are your legal obligations? How can you keep your tenants safe if the power goes out in winter?

We can help you navigate the right course to take during a tenant power outage and how to prepare for outages in the future.

 

First, Call the Utility Company

The first step after your tenants report a power outage is to get in touch with the utility company. Determine if the outage is regional and inquire about the timeline to see it fixed. This achieves two goals: First, you stay informed about the situation for your tenants. Second, you can confirm that the issue is not a problem with the property's breakers or electrical system.

• Create a formal inquery and keep your case/report number
• Request as much information as the power company can provide regarding what caused the outage and when it will be fixed.
• Request or track live updates and keep your tenants informed.

 

Reset the Breakers or Send Repairs, If Necessary

If the power outage is not a local utility issue, then it may be a problem with the electrical system in your rental house. First, walk your tenants through resetting the breaker box over the phone. If that doesn't solve the problem, then send a trusted electrician service to investigate and enact any necessary repairs.

 

Keep Your Tenants Warm During Extended Outages

During a Massachusetts winter, any outage that lasts more than an hour becomes a risk that your tenants (and pipes) may freeze. Whether the utility company will take some time to reconnect the power or the home requires electrical repairs, your tenants will need alternative ways to keep warm.

Battery-Powered Blankets and Space Heaters

It may be possible to provide your tenants with battery-powered electric blankets or block batteries with space heaters to keep warm for a day or two while repairs are underway. You can also provide auxiliary lighting and other supplies. USB battery banks and USB-powered heating devices are the safest ways to provide temporary power and heating.

Keeping Warm by the Fireplace

If the home has a fireplace in good condition and your tenants are comfortable lighting a fire, providing a cord of firewood can help your tenants keep warm in the main room during the power outage.

Alternative Lodgings

If the outage is extensive or your tenants have at-risk household members, you may consider providing alternative lodgings until the power is restored.

Good Advice and Ready Support

In most cases, tenants will be able to manage for themselves during temporary power outages and you are not obligated to provide material assistance if the outage is regional in nature. Sharing good advice on how to keep warm, prevent food from spoiling, and camp comfortably in the house until the power comes back are ways to help your tenants if they are otherwise self-sufficient.

From there, remain attentive and informed about the outage and ready to provide additional assistance if the situation becomes more dire.

 

A Landlord's Legal Obligation in a Power Outage

Is a landlord legally liable for power outages? It depends on the source.

• You are not liable for regional power outages that must be fixed by the utility company, even though the outage creates potentially unsafe living conditions.
• You are liable if the power outage was caused by an electrical flaw or failure in the home.

If the power outage is the responsibility of the utility company, a registered inquery and report can prove that you have taken steps to restore the power for your tenants as soon as possible.

 

Preparing for the Next Power Outage

Power outages are a common occurrence in any area, so it's always best to ensure your properties and tenants are prepared for the next one. There are several steps you can take to minimize the worry when the power goes out.

• Insulate your pipes: Prevent power outage burst pipes in the winter. Encasing insulation is better than heat wire when the power goes out.
• Share an outage guide: Send your tenants a power outage guide including tips on how to keep warm and prevent food spoilage.
• Provide emergency warmth: Prepare a stock of firewood, an emergency tote of blankets, and/or battery/USB heating items to keep your tenants warm during temporary winter outages.
• Have an electrician on call: In case the power outage is a property problem, have a trusted electrician with a 24/7 emergency service ready to call.
• Alternative lodging plans: Always be ready to provide your tenants with alternative lodgings at a safe and affordable hotel nearby. 

 

Prepare for Emergencies with Leaf Management

Emergency situations like a winter power outage are easier to navigate with a property management team on your side. You can keep in touch with the power company and ensure your tenants are safe with the help of Leaf Management. Contact us to upgrade your tenant care capabilities to handle any emergency in any season.

How to Manage a Water Leak

 Managing a Leak in the Water Main of Your Rental Property

What To Do If You Have A Leaking Main Water Line

Thousands of folks every year have to repair or replace a leaking main water line.

There are many types of leak that can occur in old city plumbing. Leaky faucets may drip. Rusted pipes may release water behind the walls. Frozen pipes might even burst. But the most subtle and potentially dangerous type of leak is a water main line leak. Your water main is where the building's water branches from the main supply pipes of water below ground level. Water main leaks are the most likely to damage your foundation, flood your basement, and pour out onto the street. Not only is this bad for your water bill, but it can also cause serious damage to the property, and it's not a simple plumbing repair.

What should you do if you have a leaking main water line? As underground plumbing experts, we can help.

 

First, Determine If Your Leak is the Water Main Line

Signs of a leak and signs of a water main line leak are often very similar: Water where it shouldn't be. However, water main lines are almost always underground, in the basement, or near the lowest areas of the house, where other types of leaks can appear higher in your building's structure.

Signs of a Water Main Line Leak

1. Pooling water at ground-level or in the basement
   • When a water main line leaks, water may seep up through the ground, foundation, and basement levels to form a puddle.
2. Hissing or bubbling sounds down below
   • A leaking pipe will sometimes make a soft noise as pressurized water escapes through a small leak.
3. Lower water pressure
   • A major leak in the water main can minimize your home's access to water pressure.
4. Discolored water
   • If all the water in your house becomes discolored or develops a funny smell/taste, this could be a sign of water contamination at the main line.
5. Flooded basement
   • Water main lines are more likely to flood your basement because they tend to be placed at an underground level.
6. Foundation cracks
   • If the water penetrates your foundation, it can cause expansion and dangerous cracks.

Sight Test

On rare occasions, it may be possible to physically see your water main line and where the leak is coming from.

 

How to Test If a Leak is a Water Main Line Leak

A professional plumbing service can provide water leak tests to help determine where the leak symptoms are coming from and whether the problem is your water main line.

• Meter Test
  • All faucets and shut-off valves are closed so the house should be using no water. If the meter continues to register water use, there may be main line damage.
• Audio Test
  • Delicate testing equipment may be able to listen through the pipes to determine where the water is escaping and if it's in your water main line.
• Water Main Inspection
  • A plumbing pro may also be able to access your water main line for a direct inspection of the joint components and the connected pipes.

 

What to Do If You Have a Water Main Line Leak in a Big City

Knowing what to do next is critical to protect your property and your water bill. What should you do if you have a water main line leak?

Turn Off the Water

If possible, you can stop the flooding and water damage by turning off the main water valve - if the valve itself is not the source of the leak. Closing the water main valve will stop water from reaching your building, but it will also cut off water to the leak.

If the problem is between the curb and your home, you may need a specialized plumbing service to turn off the curb stop valve.

Call 311

In most cases, unless you can actually see that your water line is leaking, is to report the leak correctly. Verification is to key to avoid performing water line repair work that may not be required. 311 is the non-emergency local government number.

Schedule Water Main Line Repairs

Once you have confirmed the location and type of damage to your water main, you can schedule repairs. Look for licensed specialists who perform this type of work. Main water service line work is a specialty within the plumbing industry. Balkan Sewer and Water Main Service specializes in underground city plumbing tasks and can provide both repairs and pipe section replacements related to your water main and the water main line that leads into your property.

 

Protect Your Property with Leaf Management

If you are worried about major malfunctions like the water main for properties in the big city, Leaf Management can help. Contact us today to partner with a skilled property management team.

Fair Housing Violations

 

How to Protect Yourself From a Fair Housing Violation Accusation

As a landlord, choosing tenants carefully is an essential part of protecting your rental homes. You are looking for people who are stable, responsible, and ideally plan to stay for a few years. However, fair housing laws require that you determine these traits without asking a number of personal questions ranging from national origins to family status. It is illegal to make decisions based on any protected status defined by the fair housing act, so landlords use credit reports, work history, and rental histories instead.

But what do you do if someone has accused you of a fair housing violation, and how can you protect yourself from fair housing accusations in the future? We can help you navigate this delicate situation to ensure your rental business is always clearly above-board.

 

Define Fair Housing Violation

The Fair Housing Act requires that landlords never make decisions - especially discriminatory decisions - based on protected information about an applicant or tenant. Knowing exactly what qualifies as a fair housing violation can help protect you from false and spurious accusations.

Protected details include:

• Race
• Skin color
• National origin
• Religion
• Sex, gender, or sexual orientation
• Familial status or structure
• Disability

Types of discriminatory practices that are prohibited include the following actions based on a protected status:

• Whether to rent to someone based on protected information
• Setting different lease terms
• Exacting harsher fees and penalties
• Raising the rent more than usual
• Providing a lower quality of service or denying service
• Use different qualification criteria
• Evict a tenant or guest
• Harass or act hostile toward a person
• Assign specific housing

You are also not permitted to reference protected status details when advertising for rental homes.

 

Refuting a Fair Housing Accusation

Landlords might be accused of fair housing violations from a rejected applicant, a current tenant, or a past tenant depending on the nature of their accusation. Fortunately, a landlord that has been running their operations with documentation and record-keeping can usually refute these accusations by providing the paperwork and criteria they use to make each decision regarding rental properties, leases, and tenant management policies.

Disclose Your Tenant Screening Process

Reveal the process you use to screen applicants for each home. Most landlords have a specific routine they go through and a formula they apply to help make a safe tenant selection for each home. This likely includes running a credit check, rental history check, and income verification, then choosing the applicant with the best numerical scores. Other laws are required to ensure these checks provide fair and equal data regardless of protected statuses.

Show Equal and Consistent Lease Terms

Most landlords use the same lease for each property, and often nearly identical lease terms between multiple properties. If you have used the same lease and terms for several previous tenants, this can show that you did not treat an accusing tenant any differently. Records regarding fees and penalties can also help show that any fees exacted were under the same policies and conditions as previous tenants.

Reveal the Purpose Behind Each Decision

For less uniform decisions, reveal your decision-making process or routine procedure, such as the process you use to send maintenance teams for house repairs, how often you answer tenant emails, and so on to show that you have treated the accusing applicant or tenant the same way you have treated everyone else.

 

How to Avoid Fair Housing Concerns in the Future

How can you protect yourself from accusations of fair housing violations in the future? While some people are inclined to make spurious decisions, you can discourage these instances and make them easy to refute with a few simple steps.

Formalize and Document Your Screening Process

Formalize your tenant screening process and do it the exact same way every time. Use numerical scores in your decision making that cannot possibly be personal or related to protected personal details. Then create a clear documentation of your screening process for each and every applicant and turnover process.

Note: Many landlords use a screening service to ensure the process is routine and objective.

Never Ask Personal and Protected Questions, Even in Small Talk

Small talk can be risky with an applicant or tenant. Never ask personal questions related to someone's identity or even their family structure and politely decline to learn more if tenants start to tell you about themselves regarding these details. Not knowing is a good protection against accusations of discrimination. 

Use the Same Lease for Every Tenant

Unify your lease terms. Many landlords use near-identical lease terms for every rental house in their portfolio. If a house requires custom terms relating to the property features (like appliances or gardens) be sure to use the same lease for each tenant of that property. Otherwise, maintain standard terms like late fee grace periods for all properties and tenants - and implement those rules the same for everyone.

Keep Records of Fees and Penalties

The biggest gray area after screening is the implementation of certain rules like fees and penalties. Keeping meticulous records of each time a penalty is enacted and why can show that you are always fair and consistent and don't apply the rules differently for different tenants.

Note: Some cases cause for unique rule management - like being particularly forgiving if you rent student housing. Document this policy clearly as well.

Document Unique Lease Negotiations

Lastly, if a tenant asks to negotiate unique lease terms, document their request, your response, and the terms you agree on. It may be reasonable for a tenant to ask for a discount on rent if they do their own yard or go half-and-half on an upgrade. Clear documentation can show that unique terms were a solid business decision and not related to tenant identity.

 

Formalize Your Rental Home Policies with Leaf Management

One of the best ways to protect yourself from fair housing accusations is to work with a property management team that has already formalized their routine for applicant screening and tenant policies. Leaf Management can help you take your rental home strategy to the next level in terms of efficiency and protection. Contact us today to learn more.

 

Hacks for New Investment Property Owners

 

6 Bookkeeping "Hacks" for New Investment Property Owners

Rental homes make great investment. Housing demand means there will always be local residents looking to rent and residential real estate tends to appreciate in value over time. However, its hardly passive income. Managing rental homes is a unique business model that you need to operate to ensure you're making a profit. That means good bookkeeping.

Whether you have one investment property or you are building your portfolio, these bookkeeping hacks can help you maximize your profits, optimize your taxes, and take good care of your long-term investment.

 

1. Maximize Your Tax Advantages

One property or many, every landlord should know their way around investment property tax deductions. You can save thousands of dollars every year by knowing how to file your taxes. As an investment property owner, you are legally considered a small business owner and you can file tax deductions for all or most of your business expenses associated with operating rental homes.

Common rental house tax deductions include:

• Mortgage interest
• Property tax
• Operating expenses
• Depreciation
• Repair costs
• Improvement Depreciation

 

2. Consistently Record and Track Expenses

Keep track of the expenses for each separate property.  Consider maintenance, repairs, utilities, property tax: anything that deducts from your operating funds regarding each property. Keep detailed records of expenses, categorized and organized.

From there, track your expenses by category and magnitude. Tag them, organize them, and chart them to reveal patterns. Then, build a financial plan that anticipates repeating expenses and estimates the cost of unplanned expenses per year.

 

3. Save 1% Property Value for Maintenance Each Year

Create a savings account for property maintenance, or a separate savings account for each property. It is common wisdom to set aside 1% of the property's value every year to cover maintenance and repair expenses. You likely won't need that entire amount every year, but will draw on this savings when big expenses like a new HVAC, roof reinstallation, foundation cracks, or local storm damage repairs are required. 

This simple savings strategy will ensure you have the cash reserves to handle the big expenses associated with home ownership that only strike once every 5-20 years.

Yearly Expenses

• Tune-ups for HVAC, Water Heaters, and other major systems
• Roof inspections and minor repairs
• At least one unexpected and minor-to-moderate repair request
• Landscaping and outdoor maintenance

Looming Expenses

• Roof replacements
• Replacing major appliances like HVAC and water heaters
• Periodic storm damage
• Major repairs like foundation cracks

 

4. Maintain Separate Books for Each Property

When you own multiple rental properties,  you can track your profits and expenses as lump sums. However, you will enjoy more refined and precise bookkeeping if you keep separate books for each property. It may reveal expense patterns unique to each property and reveal the profit/expense balance for each individual investment.

You can then use tools to combine the data for an overall look at your investment business finances.

 

5. Plan for Proactive Maintenance Expenses

Build proactive maintenance into your finances. Calculate the costs of at least one HVAC and plumbing service a year. Consider building an annual maintenance agreement with local services to ensure each property receives a cleaning and tune-up of essential systems (Roof, HVAC, water heater, pool, ect) every year. Whether you anticipate or schedule these expenses, being financially prepared for them will keep your books tidy, balanced, and optimized for realistic cash flow.

 

6. Make Use of Bookkeeping Software

In the modern era, you don't have to optimize your bookkeeping practices by hand. There are some great bookkeeping software options out there, some even built for the unique needs of rental property investors. Use these tools to easily track and categorize your income, expenses, and operating costs and even prepare your taxes based on the refined data you will be able to track for each property.

 

Work with Rental Bookkeeping Experts at Leaf Management

Last but not least, you can optimize your investment property bookkeeping with the help of pro property managers like Leaf Management. We have helped hundreds of landlords achieve optimal financial performance. Our skill with expense tracking, maintenance planning, and savvy tax deductions will help to keep your properties profitable and in good condition year after year.

Financing Your Flip

 How to Finance Flip Renovations: Rental Equity and Beyond

How to Finance Flip Renovations with Your Rental House Equity

Renovations are an inherent part of fix-and-flip real estate investing. The only question is: How will you secure the funds for your flip renovation? You can use savings or traditional loans, or you can even use the equity from rental homes you currently own.

Let's take a closer look at the many ways to finance flip renovations.

 

Cash: Renovating with Savings

The ideal financing option is to fund your flip project with savings. If you can pay in cash, you don't have to worry about loans, interest rates, or repayment schedules.  Your only concern will be staying within the exact budget of what you have saved.

Of course, not everyone has that kind of built-up savings for an entire flip renovation project. That is why there are so many home renovation financing options that allow you to take out a loan or access existing equity while you invest in a new flip property.

 

Home Equity Financing Options

The most common way to finance a home renovation is with equity in other properties. Equity is the amount of a home's value that you already own through mortgage payments. You can borrow against this value to reinvest the money in your home through improvements. Home equity financing options tend to be easier to approve and offer a significantly lower interest rate compared to other types of loans. They also do not require an excellent credit score because the property is used as collateral.

Home Equity Loan

A home equity loan borrows against yourrental house's equity. You can borrow a specific amount up to your equity total or 90% of the home's value. The fixed loan amount can help you define your budget, while the low interest rates make this type of loan more affordable than a private loan. Of course, you will need to have enough equity in your house to match the cost of your renovations.

HELOC - Home Equity Line of Credit

A HELOC is a Home Equity Line of Credit. This is a "revolving" line of credit that allows you to borrow and repay more flexibly. You can borrow what you need, when you need it, up to the value of your rental property's equity. A HELOC ensures that you don't undershoot your budget with a fixed loan amount and makes it easier to borrow the minimum that your costs require. You can also repay what you take out and then borrow again in rotation for the full duration of the "draw period", usually about 10 years.

Cash-Out Refinancing

If you are considering refinancing a rental home at a now-better interest rate than your original mortgage, then a cash-out refinance might be the best option.

Cash-out refinancing is when you refinance a mortgage at a slightly higher amount than you need to pay off the original mortgage. You can keep the difference and use it for home renovation funds. 

This strategy is only advisable if refinancing would lower your mortgage interest rate. However, it ensures that you only have one loan, your rental's mortgage, at a favorable interest rate to pay back. Your renovation funds are now similar to cash-in-hand.

 

FHA Renovation and Rehab Loans

The FHA  or Federal Housing Administration usually provides loans for first-time home buyers. However, they also provide financing for home renovations and home rehabilitation projects if your flip is currently your primary residence.

FHA home renovation loans are a special type of loan designed to ensure homeowners can afford practical or necessary home improvements. An FHA home renovation loan will lend up to $25,000 with a downpayment as low as 3.5% and a low interest rate. Loan terms can range from 6 months to 20 years.

FHS home rehab loans are similar to cash-out refinancing. The FHA will allow you to add a home improvement amount to your FHA refinanced mortgage to use for home repairs. The home improvement amount must be a minimum of $5,000.

 

High-Interest Financing Without Equity

Lastly, there are options to finance a flip renovation project through private lenders. These options tend to come at a higher interest rate, but approval tends to be faster and your individual lender options are far more diverse.

Personal Loans

Personal loans rely on your credit score rather than your equity. A personal loan does not require significant home equity and the structure is straightforward and easy to understand. Personal loans may include an origination fee and an interest rate of over 10%. They may also have shorter repayment schedules.

It is important to compare personal loan options from several lenders, and inquire about home improvement loan offers that do not require equity. Some lenders may have a special interest in supporting local homeowners or investors and provide more appealing terms.

Credit Cards

For small and last-minute home renovations, you might even use a credit card. Credit cards are available immediately to pay for repairs and quick improvements, but are not ideal for large-scale home renovation projects. It is difficult for most people to secure a credit card with a limit that could cover a full-scale project and the interest rate is unfavorably high compared to other financing options.

 

How will you finance your next flip? Contact us to learn more about the financial strategy behind flipping houses and managing a rental home portfolio.