Financing my first rehab

[Steve Sapowsky]

I will be closing on my first deal in the next couple weeks and I have the funds for purchase and closing. What are my best options for financing the rehab? (Appx $120k) I am a GC and will be doing a lot of the work myself so the cost probably won't get that high but I want to be realistic and plan for any unforseen challenges. There are two houses in the deal. Our plan is to fix up the smaller one right away so we can start renting it out ASAP. then move onto the larger house which we will renovate and live in until we finish building our own home elsewhere. Once we move out we will also rent out this home. Combined rents will be somewhere between $2000-2300. Are there any lenders on here that would finance initially for say interest only payments for 6 mos-1 yr until we could refinance? Are banks our best option? Looking for some creative feedback. Thank you!

[Christian Bors]

It depends. Do you have equity? If equity is available, you could get a residential HELOC. That would be your best bet. Interest rates are very low, probably around 4.5% if its a second lien position. If you do not have equity in the property, the cost to borrow funds will be expensive. I would look at your close network \(friends and family) first. If that does not work, a Hard Money Lender (HML) or credit cards would be another option. However, make sure you have a clear exit strategy. Since it is your first deal, I would imagine a HML will charge +12% w/ several points. What happens if the rehab takes you longer then 6 months? Can you afford to pay that cost? What happens if the property does not appraise at the expected value you projected? How will you be able to pay off the HML? HML do not typically like to lend past 12 months, It is a short term loan to get in and get out.

Also, when you said "I have the funds to purchase" does that mean you are paying cash or getting a loan? If you are paying cash, the answer is much easier. Get a residential HELOC. Usually no closing costs and reasonable interest rates.

Sorry to keep dragging this on, but another question is this deal 1 or 2 parcels?