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Updated almost 10 years ago on . Most recent reply

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Bryan Watson
  • Accountant
  • Essex, MD
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Do I find funding or the deal first?

Bryan Watson
  • Accountant
  • Essex, MD
Posted

Hello all,

I am new to real estate but I found three properties on the MLS over the weekend that I believe would be great for rehabbing; however, I have never done a rehab before. I am not sure what to do next. Should I try to find a hard money lender before I view the properties in person and decide if they are truly great deals? Should I try to bring a contractor with me to estimate costs? Should I try to find a partner after securing the deal?

Based on the photos the rehab doesn't seem too costly, rough estimate between $20K - $50K for all three (reminder I have no experience in estimating costs), but I know it doesn't beat viewing the property in person. I am scheduled to tour these properties this upcoming weekend. The details of each are below: 

Property details: 

Property 1: 

Purchase: $70,000 and $14,000 condo lien 

ARV: $140,000

Property 2: 

Purchase: $55,000 

ARV: $115,000

Property 3: 

Purchase: $45,000 

ARV: $180,000

Any advice is greatly appreciated. Also, any referrals to experienced rehabbers in Baltimore or DC is greatly appreciated.

Most Popular Reply

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Randy E.
  • Rental Property Investor
  • Durham, NC
1,311
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Randy E.
  • Rental Property Investor
  • Durham, NC
Replied
Originally posted by @Bryan Watson:

 Should I try to find a hard money lender before I view the properties in person and decide if they are truly great deals? Should I try to bring a contractor with me to estimate costs? Should I try to find a partner after securing the deal?.

 Before you can become an investor, you must have some money to invest.  Go to a bank and apply to get pre-approved for a mortgage.  Then you will know what your ceiling is.

If you prefer to use your savings, then your ceiling is whatever amount you have saved.

If you want to pursue a hard money loan, you have to be realistic and ask yourself why an experienced hard money lender would loan money to someone who has never rehabbed a house before and admits he doesn't know the first thing about estimating the cost of repair.  On the other hand, maybe you personally know someone who will loan you the money for this project.  If that's the case, maybe you don't have to worry about your lack of experience and lack of savings impeding your chances of acquiring hard money approval.

Calling the list agent may not result in actually seeing the properties.  When dealing with new clients, some real estate agents require you to present written proof of funds to prove you have the financial wherewithal to actually purchase the property.  The agent doesn't want to waste his/her time showing houses to people if the customer can't actually buy the house.  But again, if you know a real estate agent personally, maybe you can get around the Proof Of Funds request.

Same deal with convincing a contractor to go with you.  If you know someone personally, that's probably your best shot.  Ask them to visit the property with you and give you a rough estimate of the repair total.

Oh yeah, as already asked: How did you calculate those ARV numbers? Miscalculating that (and the repair costs) is a surefire way to come out of this at a loss. Instead of setting the ARV slightly above the comps, set it slightly below. That will be a safer estimate.

Good luck, but take your time and read up on this process. Jumping in before you have half an idea of what's going on isn't what you want to do. You don't have to know everything, but you need to know a few things about REI.

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