How to finance a rehab? Conventional vs hard money?

Question

Is there a way to finance a rehab while getting a conventional loan to take advantage of the low rates right now? Or is it necessary to use a hard money lender to finance both the purchase and the rehab? I'm looking at a decent deal that should cash flow nicely but I don't have the cash to put down for the rehab. I could buy it easily, but not rehab it. I could also buy it, hold it un-rehabbed until my other purchase going through is re-financed, then use those funds to rehab it, but that's going to take a good chunk of a year to complete. I have never used a hard money lender before and don't understand the process/conditions well enough to be sure of my analysis.

Anyone have any ideas on this?

Here's the deal:

Duplex in North Carolina. 2 beds 1 bath each side. Needs major work, roof, HVAC, new floors throughout, kitchen cabinets maybe salvageable, needs kitchen appliances, bathrooms wholly updated, stacked washer/dryer installed, walls and ceiling painted, baseboards updated. Also needs landscaping and curb appeal improvements like paint, some porch railing, etc.

Purchase price $50k

Expected rehab cost $40k

ARV about $120k, possibly $130k.

Will rent for minimum $650 each side. So $1300 total.

Josh Caldwell · Answer

You aren't going to like this, but walk away from that deal. Financing isn't your problem, the deal is.

Your margins are too narrow.  If your rehab numbers are accurate, this still doesnt fit a MAO formula.  IF you have one little unexpected repair, you might lose a lot of money on this one. Even without the unexpected renovation problem, holding costs will kill you.

My advice, find another property.

Dan Travieso · Answer

Josh is right, margins to thin. Entirely too risky... But assuming the numbers were good (and to answer your question), best option would be to BRRRR if you decided to keep as a rental. Use hard money or private lender to purchase the property. Depending on the bank, you can refinance after 3-6 months to get out ~80% LTV which should give you back most of what you put into it.

Odie Ayaga · Answer

Loan size would also be too small for most hard money lenders

Scott W. · Answer

EC, I would agree that your margins look too thin.  Are you factoring the closings costs and other options?  Unless you have a really good buffer in your rehab budget and your ARV is very conservative.  Another option is that you could get this under contract and wholesale the deal, but the investor you sell it too would need some good margins and may come to the same conclusion.  It's obviously easy for us to 'judge' your deal from afar, so do some good due diligence and make sure this really is a good deal or if you should move on to the next one. Good luck!

Evan C. · Answer

Murder boards are helpful too, however unplanned. The idea was to BRRRR it, more or less. It worked as a deal with the initial numbers, but I was looking for cost of rehab financing before making the final decision. The tax value on this place is about $80k. Pretty sure for the right price (which, perhaps, is under $50k) it would be viable. The neighborhood is solid, the demand is solid. I'm lowballing the rent estimates slightly. I'm aware of at least two similar deals in the area that worked out. So, admittedly, the initial reaction has caught me by surprise. I'll take it seriously though as I do the analysis.

How to finance a rehab? Conventional vs hard money?

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