Never Start an Underfunded Rehab Project

[Corey Dutton]

For real estate investors seeking to buy rehab properties, to be underfunded on a rehab project, this is a bad place to be. By “underfunded,” I mean that one discovers that there are not enough funds to complete the rehab project to the desired, or required, specifications. So what do you do when you find yourself in this precarious position of being underfunded in a real estate rehab project? The more important question is, how does one avoid this situation altogether? Never start a real estate rehab project unless you know for certain that you have enough funds to complete it.

Many a real estate deal was lost, or ended up making no return, due to the mere fact that the deal was not properly funded to start with. Many real estate investors will start a project on a hope that another form of financing will come through to finance the repairs. They will purchase the properties, in most cases only to find that this “other” form of financing needed to complete the repairs never comes through. Once you own a property the clock starts ticking, particularly if one takes out a loan such as a private or hard money loan to purchase an investment property. If a partner, friend, or family member offers to finance your project, ask for proof of funds from this individual before you complete the purchase. If this individual cannot, or will not provide a proof of funds such as an account statement, this could be a red flag. Although there are many possible exit strategies for an underfunded project, be aware before you start about the dangers of being underfunded.Does anyone here on BP have any stories to share about one of their projects that was underfunded? Please share.