Creative ways to finance rehab

[Ben McPhail]

I am looking at buying a single family investment property in Fayetteville NC for $140,000.  Estimated repairs are $25,000 with and After repair value of $180,000.  If I want to keep more cash on hand should I get a traditional loan and then seek an additional home repair loan for $25,000 or should I look to get a fix and flip loan?  Are there other options or creative ways I could explore financing the rehab portion?

[Will Barnard]

Originally posted by @Ben McPhail:

I am looking at buying a single family investment property in Fayetteville NC for $140,000.  Estimated repairs are $25,000 with and After repair value of $180,000.  If I want to keep more cash on hand should I get a traditional loan and then seek an additional home repair loan for $25,000 or should I look to get a fix and flip loan?  Are there other options or creative ways I could explore financing the rehab portion?

Ben, financing is the least of your problems here. Take your $140k purchase, add in $25k in renovations and you get $165k. Divide 165k by your $180k ARV and you get .916666 which means your deal is 91.6% of ARV. You need to cover holding costs (taxes, insurance, utilities, etc.) as well as resale costs (RE commissions, title and escrow costs, recording fees, etc.) and debt service costs (interest payments and loan fees. All of these costs will add up to well over your 8.4% spread you have in this deal which makes this NOT a deal at all. Even at 85%, you will likely lose money and when you finance 100% of a deal in a property value under $200k, you really need to be lower than 75% minimum to have a profit spread at the end.

To answer your question, financing is key if you are not sitting on cash and as such, it is imperative you line this up before you start making offers on properties. You have many options in financing - hard money lenders, private money lenders (be careful as many people interchange these terms and many hard money lenders call themselves private money lenders - its not true), seller carried financing, subject to deals (leaving sellers mortgage in place which is a form of seller financing using banks money), credit cards, lines of credit (secured and unsecured), or a combination of any of these named. Study, study and study all of this so you are clear on what they all are, what rates you should be paying for each, how you can acquire each, etc.