Home rehab loans seem more expensive upfront—but fix and flip pros know from experience that leveraging their money with high interest private lenders pays more than the lower mortgage fees of conventional lenders.
The big advantage of hard money rehab loans is they provide quick funding for real estate investors who seek quick turnaround on a rehab property. At the same time, rehab loans provide 100% of the upfront purchase and repair costs— unlike bank loans, which require a substantial down payment. Hard money lending lets you move fast on the cheapest and most opportune foreclosures and deals—with freer cash flow for fixing and flipping.
Using even limited cash to leverage a single profitable deal with a home rehab loan, positions a smart real estate investor to leverage, in turn, multiple lucrative deals with private lenders, an otherwise impractical strategy with slower conventional loan processing and more limited cash flows.
Things to Know About Rehab Lenders
Hard money home rehab loans have been considered in the past a last resort for more distressed properties, which banks notoriously prefer not to fund. Hard lenders fund around 70% of the after-repair-value (AFR) of a property, leaving them a percentage in equity leeway in case a buyer should default on a loan. The shrewd real estate investor increases the percentage of allowed hard money funding by choosing to pay only for properties, which cost far less than the appraisal value.
Getting full funding with fast loan turnaround—sometimes overnight, is a straightforward process with hard money home lenders, unlike with banks, which demand a hefty down payment and take months processing the many requirements for rehab loans.
Things to Know About Bank Lenders
While a home rehab lender will move to finance and help you close a real estate deal within days, a conventional lender will take anywhere from 30 to 90 days, possibly rejecting a loan in its final stages due to any number of complications with property or financing. Slow red tape costs you time, money and missed opportunities, while other better-financed buyers beat you to the best deals. Further, bank owned properties and other short sale opportunities often stipulate deadlines for closings.
Hard Money Makes Deals Easy
A private mortgage seems exorbitant upfront, but if you buy according to market value and borrow to rehab and sell on schedule, you will invariably profit consistently. Get to know hard money lenders who you feel good about for all your home rehab loans.
