No Money Down Rehab and Hold

12 Replies

Since hearing on a recent podcast and after a friend encouraged me to share, I thought I would share 1 of my success stories from earlier this year.

I purchased a single family house with a guest house on about 1 acre of land in my area (Island County Washington). It was a (reverse mortgage) foreclosure I found on the MLS but I had been tracking the house for 24 months so I knew it would be available at some point. I purchased the property for $160,000 (there was a higher offer from another buyer but my track record help me convince the seller to go with my all cash offer). I knew that with some cosmetic fixes the property should appraise for $300,000 so the idea was to buy (with hard money), rehab, refinance and then hold as a rental.

My hard money lender trusts me and saw the value in the deal so he not only put up the money to buy the house but he put up the rehab money as well.  I did have to give him a lien against a separate lot that I own outright that is worth about $50,000 just so I had some skin in the game but I was able to do this without using any cash.  Pretty cool. 

So we closed on the property, I rehabbed the place and rented it out in about 3 months (gross rent is $2,350).  I also knew that if the appraisal came back low, I could sell the property for $300,000 for a quick sale.  I like having more than 1 exit strategy.

So about 4 months after closing, we went to refinance and the appraisal came back at $325,000.  I owed the hard money lender $210,000 so we put about a $210,000 loan on the property and paid off the hard money lender.  The loan to value ratio needed to be 80% so we were well below that number (about 65%).  I cold have even pulled some cash out of this property but I wanted to be a little more conservative making sure my rental rate supported the loan amount.

Now I have a 2 unit rental with just over $100,000 in equity that cash flows a few hundred bucks and again I did not have to come up with any cash to do this deal.

Nice work!!!   I didnt know conventional lenders will still allow for you to pull cash out. 

Nice!  Except I would have sold the property as it wouldn't have cashed flowed well enough to justify holding it.

Originally posted by @Curt Davis :

Nice work!!!   I didnt know conventional lenders will still allow for you to pull cash out. 

 I have pulled cash out of deals in similar scenarios this year.  I believe you have to wait 6 months.

Originally posted by @Larry T. :

Nice!  Except I would have sold the property as it wouldn't have cashed flowed well enough to justify holding it.

I hear you.  It does not cash flow like crazy so I get why many investors would have old.  It works for me as I have no cash in to it and it does cash flow; some argue this is an infinite cash-on-cash return.  Of course my $100k of equity is now tied up in the deal but I am ok with that for now.

Hello @Paul T.  

Does this mean, you spent about $50K on Re-hab?

Were you able to get conventional loan after getting a renter in?

Congratulations, it looks like a great deal!

Originally posted by @Casey Rolland :

Hello @Paul T. 

Does this mean, you spent about $50K on Re-hab?

Were you able to get conventional loan after getting a renter in?

Congratulations, it looks like a great deal!

Thank you for the question.  So the rehab was more like $40k but with closing costs, refinance, lender fees, ect. the net number between what I paid for the property and the long term debt I put on the property was about $50k. Yes, I was able to get a conventional 30 year loan n the property.

Paul, I like it! I'm about to enter into a similar situation with a dear friend of mine putting up the cash. We were wondering how I'd pay him back after the rehab so purchase price + rehab. I THOUGHT that you could pull either a mortgage or a HELOC (up to 80% of the equity correct?) out that's good to know! You gotta wait six months huh? He'll loan me the cash, I'll buy the property, my name on the deed goes to an attorney for a DIL amongst the three of us, rehab, reasses, bank sees me as having 100% equity since the DIL is private, I pull a mortgage/HELOC, pay him back and ta-da!


Great job, Paul! I think people opening doors for you based on your reputation and track record is the most impressive part of this story. That's a good example for the rest of us. Keep up the good work.

Originally posted by @Matt Good:

Paul, I like it! I'm about to enter into a similar situation with a dear friend of mine putting up the cash. We were wondering how I'd pay him back after the rehab so purchase price + rehab. I THOUGHT that you could pull either a mortgage or a HELOC (up to 80% of the equity correct?) out that's good to know! You gotta wait six months huh? He'll loan me the cash, I'll buy the property, my name on the deed goes to an attorney for a DIL amongst the three of us, rehab, reasses, bank sees me as having 100% equity since the DIL is private, I pull a mortgage/HELOC, pay him back and ta-da!

 Thank you for sharing @Matt Good.  Let me know if you have any other specific questions as you venture in to your similar deal.

Originally posted by @Guy M. :

Great job, Paul! I think people opening doors for you based on your reputation and track record is the most impressive part of this story. That's a good example for the rest of us. Keep up the good work.

 Thank you for the encouraging words.

Wow, nice job! Do you have any before/after pics? 

Originally posted by @Troy S. :

Wow, nice job! Do you have any before/after pics? 

 Here are a few before pictures:

Here are a couple after pictures:

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