Financing a rehab project with no skin in the game
For investors in Eastern Massachusetts, there is a new program for rehab financing that allows you, in the right circumstances, to finance 100% of purchase and 100% of the rehab budget.
The total loan is subject to 70% of ARV, and this is an equity sharing deal, so the costs are higher than most hard money.
But for the right deal, it can make sense -
- If you have multiple projects and find a good deal and don't have tons of cash for the down payment
- If you're a new rehabber but found a great deal, and don't have tons of cash
Here is a link to the program, so you can view the terms and see if it makes sense for you
Comments (4)
Charles, this is a new program - we'll see how it goes.
Ann Bellamy, almost 13 years ago
Jon, our normal structure is 60% of ARV - a conservative ARV in a declining market. Out of that we fund 100% of rehab budget, and the balance goes toward the purchase price. If 60% of ARV is 100% financing, then normally we won't fund it all, and require skin. This new program solves that issue. If the rehabber is getting their "skin" from another source, then we look even more carefully at the deal. The purpose of the borrower having a stake in the deal is two-fold: One, so that they are motivated to make it succeed, and two, to reduce our risk. If the borrower gets his piece from someone else, the borrower is not as motivated and that makes our risk go up. Not that we won't still consider it, but it would kill a deal that was marginal to start with, or cause a restructuring of the terms. And please understand we don't fund in Texas, where you are, so we aren't directly useful to you.
Ann Bellamy, almost 13 years ago
I've been hearing more about these programs lately. I recently had contact with a bank that use to do lots of commercial financing then quit making these loans and is now able once again to do commercial loans. Nice to know that this kind of loan is available.
Account Closed, almost 13 years ago
Ann, normally how much will you finance as a percentage of purchase and repairs? Of ARV? What if the rehab/flipper is borrowing their piece from some where else?
Jon Klaus, almost 13 years ago