Finance Investment Property Purchase + Rehab ?

Question

There is a SFR in my neighborhood (I know the owner), and the inside has been gutted & has remained unfinished for at least a couple years because they ran out of money.  We have a good amount of equity in our personal residence--enough, say, for a down payment &/or rehab costs.

But I have never bought an investment property before, and it seems like lenders won't touch a deal that needs rehab (unless it's owner-occupied).  It's seems like a catch-22 / chicken-or-egg-first kinda conundrum.  How can I get financing for this purchase ?  By the way, we want to hold onto it for the long-term & rent it out.

Also, my good friend is a general contractor.

David Haynes · Answer

There are a few avenues you can take to get the funds that you need.

It's cliche and possibly humbling, but start with family and friends. Depending on how much equity you pull out of your current home, they may have enough to cover the rehab costs until the property qualifies for a government-backed loan. Depending on the appraisal, you may be able to reward them for helping you.

Some investors have been able to get a line of credit at the bank. It's rare but possible. Your bank will be able to tell you whether you qualify.

The most popular route is to borrow from a hard-money lender. There should be several hard-money lenders in your area. You could also find some that operate nation-wide. These loans are typically for a year or less and charge higher interest rates than conventional loans. Competitive rates can range from 9-11%. They will often lend up to 75% of the purchase price and rehab. When you utilize these loans, you want to finish the rehab as quickly as possible so that you can refinance out and avoid the high interest.

Try to connect with investors in your area. They will be able to give you more specific guidance.

Matt Kohnen · Answer

Thank you David!  Very helpful.