Buying a rental and using a rehab loan...

[Robert Arquilla]

Im thinking about buying a fixer upper for a long term rental and using a rehab loan.

What are some challenges you faced when you did this?

Anything I should ask the lender specifically?

My thoughts are there are a lot of houses that are in a C to C+ area that are really cheap 15-25k that will be worth 40-65k when fixed up but my thinking is it will take care of a lot of capex issues up front for a profitable rental unit. Rents are around 600-800 depending on the size and bedrooms.

Tell me about your experiences good and bad!!

Thanks!

[Tom S.]

@Robert Arquilla  I have done a number of purchase + rehab loans for places I keep as a rental after.  Therefore, I've used local banks in my area that hold the loan in-house and have more flexibility on the condition of the property.  

The last one I did was $50k and I needed 20% down (10k).  $25k rehab.  So they advanced me $65k total.  

They required $30k in liquid cash ($10k down, $10k to start the rehab, and $10k in reserves).  3 draws and reimbursed after each draw and inspection.

Best part, because it's not hard money, the loan had no points, 5% interest and 20 year term. It converted to a regular mortgage once the rehab was finished (no refi required). Technically the loan is commercial even though I've used them on SFH or duplex. Doesn't report on my credit.

Hope that helps,.

- Tom