Funding a Rehab for a seller financed deal

[Tristan Bulot]

Im in the process of getting a distressed duplex (small fire) that someone has started to flip. Its been sitting vacant and costing him money so I called and pitched a low cash offer and then a higher seller financing option. It sounds like he will bite on the seller financing option to recoup some capital he has in this property.

The deal structure would look like this: $100k seller financed with 0% down at 8% apr amortized @ 30 yrs w/ a balloon payment due @ 1yr (3 month rehab time, 6 month refi) ARV @ $240k. I am estimating rehab costs being at $55k.

My question is what are some ways I could finance rehab costs? I feel it may be hard because it will be hard to secure their loan since all equity is still with seller.

any thoughts, advice, or ideas very appreciated!

[Ryan Blake]

@Tristan Bulot Why would the equity still be the seller's? Are you closing on the property and putting it in your name? That would mean you own the property and any equity in it would be yours. The seller will probably want a lien on the property to protect their interest but that would be it.

You will need to find a lender willing to take a second lien position on the property. These can be hard because if anything goes wrong, the first lien holder with be in position to recoup all costs first. There are lenders that will take a second position but you are going to pay extra in interest and fees for it (in most cases).

I see you are paying $0 and need $55k for your rehab. How much are you putting towards the rehab or are you trying to borrower all of it? That will make a difference too. If you have no assets to guarantee a loan before and if this is one of the first deals you are doing, it will be difficult because of the high risk of default.

I think you best bet is to put together a detailed pro-forma with the tools on this site and visit with family members who may have cash or equity in a home, then with local investors in the area, then with hard money lenders, then finally with local small banks. It will be an uphill battle but if you believe in the project, it will be worth it.