Do private lenders allow for DIY rehab?

Question

Is it common place for private lenders to allow for DIY renovations by the borrower?  Or do they typically require contractors to do everything like most banks do?

Hugh Ayles · Answer

Jessica Hood

We do most of the work ourselves and our private lenders and HMLs do not have a problem with that.  I do have a number of years in construction though.

That being said, I am not getting reimbursed for labor, just material.

Lee Smith · Answer

Jessica Hood  IMHO: Private lenders are generally friends or people you know who are not savvy active investors.. So it would pretty much depend on their needs/desires... That's not to say that you shouldn't teach them the right way to lend money(escrowing funds and providing the funds to you after you provide receipts and proof work was completed properly)...You are probably talking more about hard money lenders... This would also depend on their requirements.. I have seen some that just want to see receipts and pictures/videos and they are fine.. Others do want licensed contractors doing work, pulling permits, etc...

Brad Smith · Answer

Jessica Hood

Hi Jessica,

It really depends on the scope of work to be performed.  If you are doing any work that requires permits, electrical, plumbing or roofing then yes, you will have to use a licensed Contractor.

If, however, your rehab consists of paint, carpet, appliances, kitchen and bathroom remodeling, you can do that yourself and present receipts or invoices to Lender to have repair escrow funds released.

Hope that helps!

Bill Gulley · Answer

As mentioned, private lenders are not in the business of lending, you need to protect  them more than  your first born IMO.

You have (and I have) no idea how many times someone asked for a loan for a DIY fix, lots of times.

I'd say fine, what do you do? I'm a school teacher, I teach Science and History.

Have you ever done home construction professionally? Well, no, it's a hobby.

Here is our issue, the property is our collateral, if you get hit by a bus we may  end up with the house. Now, if you're not a professional, how can I be assured that all  the doors actually close or even stay open, that the windows seal, that trim actually fits as it should without filler or that a joist  you replaced was properly sized?

Now, if you hire a contractor who will be responsible for the work, licensed trades to sign off then we have some assurance as to the condition of our collateral. Now,  if the contractor agrees to  hire you to do simple  tasks, that's fine, but they are responsible.

To start out, hire the  work out and then work  you deal with the contractor, stay out of his way and get your work done as agreed. Good luck :)

Lavorn Hodges · Answer

I agree that DIY is kinda fun at first, but as you get into different jobs...it can become time consuming. If you're going to DIY, I suggest that you pick something you like to do and good at... also Rent tools to help you. ..the sledgehammer and shovel can't do everything.

Jessica Hood · Answer

Yes, I do agree with you.  I am aware of the pros and cons of DIY.  I ask about it, not necessarily because I intend to do it ALL myself.  But I want the flexibility of picking and choosing what I do and what I pay others to do.  I am keen to what is best for contractors to do and me to sit out.  I just don't like being in a position where I have no options to do anything myself.  I am quite knowledgeable and experienced with renovations, thanks to my father.

Jessica Hood · Answer

Thank you for the information!  I am not looking to get reimbursed for my labor other than the profits of the sale.  I just really prefer to be as cost effective and hands on as possible.

David Faulkner · Answer

I admire the DIY tenacity, and I am a recovering DIYer myself, but even if a private lender will let you, you still may not want to. DIY is great for your primary residence as it is a good way to save on labor costs and learn the ropes, but it has its limits with a pure investment. Once you start moving away from house hacking personal residences and into the realm of pure investments (either flips or buy-and-holds that you never live in), consider contracting out more if not everything. Yes, your labor costs will go up, but if you do it right your hold time (and hold costs and market risk) will go down AND it will free up your time to focus on more profitable ventures, like filling the acquisition pipeline with more great deals. If you are not getting utility out of the place by living there, then every day you don't have it rented or sold is costing you money and lowering your return usually more than the additional labor costs you'd save with DIY. You will find it very difficult if not impossible to scale up to a level where you are consistently making profits you can live comfortably off of if you DIY everything. Of course, this may not be your end goal, but something to consider...

Jessica Hood · Answer

@Lee Smith  Thank you for the information!  I am comparing all possible avenues, so that is good to know.  I am looking for options that will allow me some freedom to do general work myself.

Jessica Hood · Answer

@Brad Smith  Yes, that is exactly what I had in mind.  I do know that certain things must be done by licensed professionals.  It is the other things I am wondering about.  Thank you for the information!  I appreciate it!