BiggerPockets

Okay, I'm new to this, came into this thinking WHOLESALE. Have not made my first deal yet, but don't worry, I'm not discouraged, I know I have to keep on keeping on!

However....I've been thinking about taking out a hard money loan and rehabbing a property. I don't have my own capital to invest myself, but I do qualify for a Hard Money Loan. One that will add on the payments to the loan at the end, so I wouldn't have to make a payment during the rehab. They would also give me rehab money.

I'm skeptical, and I don't know whether or not I want to jump into this. It sounds fun and exciting, but will it really work?

My idea is that....there are ALOT of properties here in Florida that won't make it to FHA standards. I know this because I was house hunting six months ago and all I was approved for was FHA, which limited me.

Now, my credit is awesome and other opportunities have opened up. I also know, from working with people on a daily basis, that there are ALOT of people approved for FHA looking for houses right now....and maybe they can find one, I can rehab it and make it FHA standards and they can buy it from me?

I have contacts for all the rehabs that would need to be done to a property. My partner already has two rehabs under his belt, his own houses, but still, rehabs. Also, I have built a team with a realtor, investor, and mortgage lender that I trust.

People....I am young, ...and inexperienced. I'm here to learn from all of you, advice please!

No, definitely do not start out rehabbing. Start out w/ wholesaling. Wholesale your properties to your partner who will do the rehabs. Seems like you need to read a few more real estate books. Ask any investor and they will tell you that rehab is about the hardest aspect of investing. Why not take a path of lesser resistance?

The key to a successful rehab project is to realize it will take longer than you expect and cost more than you expect. In the end, it will take longer to sell and sell for less than you expect.

So, you must be very conservative in estimating expenses and the selling price. This is a place to look for what's the worst that could happen when doing the rehab. As soon as you start work, you'll find work you didn't see at first. You'll have troubles with some contractor, and have to find another one to do the work.

Really would be best if you had some cash available, in some form. Could be a line of credit or a credit card, but you need to cover expenses somehow.

If your hard money lender will cover 65% of ARV, and you have none of your own cash, you need to buy at a price where buy plus rehab costs are under 55% of ARV. Otherwise, you WILL need cash of your own. You'll have up front costs like insurance, inspections, apprasial, etc. The points will come off the top. If you're paying four points plus closing costs, and purchase plus rehab is right at what the HML will lend, you'll need 6-7% of the purchase price to cover the up front costs and points.

Most HMLs want to see you pay for materials and labor, then reimburse you when the work is done.

You'll need to cover utilities, taxes (maybe), insurance, and routine maintenance (e.g., lawn,HOA) while you hold it.

You need to be sure property is actually selling. If there are a lot of pretty houses that have been on the market a long time, you might think twice. If move-in-ready houses sell quickly, maybe this will work.

Thank you all. It looks like I will get into rehabbing, just not now. From all of your advice I think I have the right idea...I just need to establish some capital so it's not so risky. I do have some capital, but it's definately not enough.

I've been trying to wholesale a couple of properties so I can get moving, but I haven't closed my first deal yet. I'm getting a little impatient, but I'm not giving up yet.

Thanks again for all your advice....I'll let you know when I do jump into rehabbing, just doesnt seem to be the right time for me now.