What are my financing options??

Question

I am looking at buying two properties, they are side by side and are spec homes that need renovations. I would need to finance the homes and the construction. My local banks either want too much down or want me to have a material list of absolutely everything the property needs. What's my options without having to put 25% down?

Erik Estrada · Answer

Do you mind elaborating on the spec home part? Are these properties SFRs, Manufactured, Duplex?

Jeff Copeland · Answer

What are "spec homes that need renovations"?

The term spec home usually refers to new builds that are built on speculation (i.e. built with the hope/plan of selling it to a buyer than has not been identified yet, after construction is finished) [Though maybe there are regional variations? I don't pretend to know everything!].

Whereas custom homes are built for a particular owner/buyer who is involved with the design and build from the very beginning.

That being said, banks are usually very good an underwriting deals (it's sort of their number one job), so often it's worth listening to them. If you don't even have a list of everything the property needs, how can you possibly fully understand the deal and pitch it as a lending or investment opportunity? From a lender's perspective, you sound look like a very risky borrower.

Hard Money is an short-term alternative to traditional bank loans and is more suited to rehabs and flips, but any lender is:

1) Going to underwrite the deal to make sure the numbers make sense, there is a clear upside, and plenty of wiggle room (and thus will expect you to come to them with a very clear picture of exactly what needs to be done, including a scope of work, detailed costs, and contingencies), and

2) Expect you to have skin in the game. 25% is pretty reasonable, actually. If you don't have it, consider bringing in a money partner until you have the capital/liquidity to handle deals yourself.