Updated about 8 years ago on . Most recent reply
Construction Loan (For Buy and Hold)
Hey everyone, I'm 21 years old and recently bought a single family house I'm renting to an elderly couple. I will be looking for my second rental property sometime early next year and have been considering buying a cheap fixer upper house around the 20,000 dollar range. I will then take out a construction loan to fix the house and then instead of selling, I will hold it and rent it. My thinking is that I can put very little money down on this deal while at the same time having a cheaper mortgage compared to if I just go out and buy a $60,000 house. I live Missouri so the houses here I priced pretty well. Just wanting to get everyone's thoughts on this? Has anyone done this? What did it cost? And did everything go? Thanks!
Most Popular Reply
@Jake Johnston I think what @JD Martin is eluding to is that with the construction (or maybe you are referring to a purchase/renovation loan) loan, the money for the repairs is held in an escrow account and you have to jump through a bunch a red tape just to get draws. With late cash infusions, work on the house will get delayed.
A better option is to secure funding through a Line of Credit, Private Funding, crowd funding, or some other source where there is no red tape to get a $1000 draw. Then, after repairs are complete, you can look to get a cash out loan to repay what you borrowed. Many refer to this as the BRRRR method.