Start Out Guide for Rehab Loan for New Real Estate Investors


Real estate investors can benefit from many different ways, and each investor chooses his or her plan of investing based on individual financial circumstances. While there are numerous ways of benefiting from buying homes, one of the most tried and tested ways is to fix and flip properties.

When an investor purchases a home, a fix and flip investment fixes it up and then sells it for a price higher than the purchase price and the construction costs combined. Fixing and flipping properties has been one of the most used ways of making huge profits by real estate investors for many years now.

If you are considering fixing and flip property, then this blog is for you as we walk you over the basics of Rehab loans for real estate investors. 

Whether you want to choose an extensive heavy rehab or get done with cosmetic flips, which would focus on a new painting, fixtures, or adding some beautiful countertops – this blog can help you start, especially if you are a new investor. 

Knowing the ins and outs of rehab loans

If you want to make a good profit from fixing and flipping properties, it is detrimental that you understand the ins and outs of Rehab loans.

While the entire process of fixing and flipping properties may seem easy from the outlook – one must note that the wrong type of financing can eat up a lot of your profits and come in the way of your real estate investment strategy.

When it comes to fix and flip properties, you cannot afford to make a wrong financing decision. Regardless of how great your fixer-upper plan is and how beautiful you have flipped your property, wrong financing can cost a lot. 

While understanding the ins and outs of Rehab loans, one of the first things you need to know is the difference between renovating a home as an investor and renovating a home as a homeowner. There is a huge difference between the two as the whole intention behind both varies massively.

For instance, a homeowner who wants to buy a home and make some repairs and renovations to the property can opt for an FHA 203k loan federally backed by the Federal Housing Administration, which finances the purchase and the additional construction costs.

Since a homeowner takes it – the FHA Mortgage Loan will generally carry a lower loan interest rate over a fixed term. 

However, when it comes to investors – opting for an FHA-backed 203 k loan does not work. One of the first things lenders require is underwriting from the borrower, which can mean much higher interest rates varying based on the credit scores.

Banks would also require the borrower to have a steady income which is not the case with most real estate investors who make irregular intermediate profits. 

This does not mean that investors do not have regular cash flows, but since investors do not receive a paycheque every month – banks don’t really come forward to lend loans. Adding to this is an additional requirement of 203K loans, making it only available for buyers who plan to live in a home after rehab in the foreseeable future.

Thus, opting for an FHA 203K loan for Rehab is generally out of the picture for most Commercial Real Estate Investors. 

What other options can real estate investors explore? 

The above-mentioned limitations of an FHA 203K loan mean that investors need to look for other sources of Rehab loans. One of such best sources of Rehab loans is private lenders.

While it may appear that the Rehab loans provided by private lenders generally carry higher interest rates, in reality, payments are much lesser because these are interest-only loans.

These loans are given for a short-term period, which means that the investor has to buy an existing home during the short period of the loan, complete all the home renovations or improvements, and then sell the property before the term is over. 

As long as all the steps go according to the plan and in time – it is quite safe to take a rehab loan from private lenders. Further, the proceeds from the sale of the rehabbed property will pay off the purchase and construction expenses along with the investor profits.

These loans will allow the investors to finance the purchase of the property along with the construction costs. The Rehab budget is generally placed in an escrow account, and the borrower uses funds as and when needed. 

Some key questions to answer before drawing the process of construction funds:

  • How and when can you access the finance from the rehab escrow account?
  • How long would it take to receive the hands from the rehab escrow account?
  • Will the lender charge any interest on the undrawn share of construction funds?

These are general terms and conditions that must be agreed upon between the private lender and the borrower before drawing the loan agreement. It is best to have all your questions answered before you decide on taking your loan.

It is also important to understand that a mere lower interest rate rehab loan is not the only factor considered while making a loan purchase decision. 

In some cases, there might be many hidden costs that you don’t see coming. By finding the right rehab loan, commercial real estate investors can gain a key tool in drafting a profitable house flip strategy. To generate huge profits from fix and flip investment properties, it is crucial to find a dependable lender who provides competitive rates and terms and is reliable in catering to your immediate financing needs.

Private capital Investors have provided Rehab loans for fix-and-flip properties for many years now. They have enabled investors to generate profits time and again with dependable and reliable financing. 

Additionally, it is also important that you find a private lender who can close loans quickly so that you have the leverage of time on your hand and can quickly start the process of rehab on your property.

When you find a new private lender in the market, ensure that you are doing thorough research and reading all the advertising disclosures carefully before deciding to finance your loan from them. 

At the end of the day, it is important to understand that finding a dependable and reliable lender is a time-consuming task, but it pays off very well in the long run. Reach out to us and talk to one of our expert real estate financing consultants to know more; we’d be happy to help. 

Want to learn more? Get in touch with us today.

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