Best loan type for purchase & rehab? Land & build?

Question

Hi all,

Would like to get a general idea of which types of loan products work best for different scenarios. When to use bank, when to use private or construction etc… Which offer best terms, most flexibility, trade offs? I am looking them up one by one but I would like a summary from people who have used them, what you liked/didn’t like about the loan product you used etc. I am interested in loans for house purchase and rehab and others for land purchase and new home build. Thank you for your help!

Renee

Andrew Postell · Answer

Account Closed this is not intended to answer your question completely...I can think of about 80 different loans that could potentially fit in what you are asking....so explaining each at length would take a while....here's 3 quick summaries that might be able to help:

Using the BRRRR Method - We usually need a temporary, short term loan for the acquisition step in this process. The most common type is a Hard Money Loan (HML) since it will allow the least out of pocket (sometimes $0) when we purchase a property. Then when we are completed with the renovation process we REFINANCE (it's the 4th "R") we refinancing into the permanent, 30 year, fixed rate loan type.

Flipping - when you flip, you just use the HML to acquire and don't refinance.

New Build Process - In this scenario we are not renovating...but instead building. So, the loans are different but the structure is similar. Usually you need 20%-30% down to build, it is a loan that grows over time, and then you sell to your end buyer. You don't refinance here either since you are selling the property.

Hope some of that helps.

Account Closed · Answer

@Erik Estrada Thanks for the info :)) That makes sense. A lender wouldn’t want to put money in hands that won’t produce returns. I am considering building from scratch because the square foot cost of some of the existing homes I’m seeing is more than what it costs to build and what I would build for a cost of roughly 140k would be way better designed, desirable and stand out to buyers. I prefer this area to start because it’s my hometown and I know the neighborhoods very well. I would just need to prove the design, team and project to the right lender. Will see. If BRRRs show up in good spots, I’ll take those. If there’s a great piece of land - build. I want to be ready for both.

Account Closed · Answer

@Andrew Postell perfect thank you!!!

Erik Estrada · Answer

Hi Renee,

Sounds like you are interested in Ground-up construction loans and fix and flip loans:

Ground-up construction typically requires more experience. Lenders would like to see at least 2-5 projects completed and will require at least 25-30% down.

Fix and Flip is a lot more lenient. You may be a first time flipper and qualify with 25% down.

I would ask, where are you at in terms of experience? Would this be your first venture or have you completed several flips/construction projects?

Best loan type for purchase & rehab? Land & build?

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