Warehouse loans for real estate investing??
So I had a conversation with an investor whose whole book of business (if I understood him correctly) is buying distressed homes using a warehouse loan, rehabbing them, and then selling through owner financing. He then takes that house and refinances it with a bank getting 80% of appraised value. So to give an example:
Purchase price - $50K
Rehab - $30K
Sale Price - $100K
Down payment - $10K
Mortgage (10% interest) - $790
Refinance - $80K
Refinance payment - $429
Monthly profit - $361
My question is, can anyone explain how the warehouse loan works and what are normal terms? I’m not even sure what a warehouse loan is, to be honest. This looks like there would be a $10K profit after the refinance BUT I’m sure there is some interest included in the $80K that was borrowed for the purchase and rehab. Can someone educate me on this type of investing? Thanks in advance!