Full Financing of a Rehab

4 Replies

I am preparing to rehab my first project. It has plenty of profit in the deal. I need advice as to how to get 100% financing. I have no money to put into the deal but plan on putting 80% of all profit into saving for future deals. I have the time to put into this but not the cash. I have found plenty of profitable deals and wish to do 10-12 rehabs a year.

Any suggestions on how to get this deal with no personal money in?

IMHO this will be VERY, VERY hard to do. The only way you're doing this is with a combination of loans. If you can borrow 70% of ARV from a HML and your purchase plus rehab cost is also 70% of ARV you stand to make a profit of about 13% of ARV. You will also need about 15% of ARV of your own cash to complete this deal. If you have none of your own cash then you'll need to come up with that 15% from some other source. A number of options to do this:

  • Loan against another asset
  • Personal loan
  • Credit cards (for suppliers that will take credit cards)
  • Credit card cash advances (for suppliers that won't)
  • 401k loan
  • Loans or equity investment from private lenders (people you personally know)
  • Sell something
  • Get a second job

In addition, finding those 70% deals is difficult.  Nearly impossible in many areas, like around here.  If your deal is at 75%, then you'll need another 5% of your own cash.

Many HMLs now require a minimum down payment.  If so, that's also out of pocket.

If you are getting funding by an HML and you run out of cash and can't finish the project the HML is going to take the property. They're not going to "work something out" or do a loan modification. Its like playing poker. You might have a winning hand but if you don't have the money on the table you're out of the hand. I've been the lender on a deal like that. I don't know the exact details but I believe the rehabber had about $30K of their own cash into the deal when they defaulted and had to walk away. If that was $30K you borrowed from friends or family or on a credit card, that's still going to need to be paid back.

Sorry to tell you Jerry, but I don't think you have any chance of putting this together without experience or equity of your own. These are two major hurdles for new people. 

What you really need to do is change your order of priorities and the first and foremost is to get your first deal across the line with as much hands on experience as you can get out of it. money comes second right now, but that changes PDQ. Sounds harsh, right? It's about the easiest and simplest way to get going in this business.

Let me put it in a nicer, softer way. There are loads of deals out there, but only one of you. 

If there's "plenty of profit" in this deal, then you should have no problem finding someone to take it on who will give you some sort of a payday at the end and some sort of hands on experience to go with that. So if at the end of your first deal if you have some experience and even a small profit, you will have achieved a success and accomplishment. 

This is a tough business and it takes this kind of commitment to get started which so many newbies seems to balk at.  So put yourself out there with this deal and if it does not get you to next step, off ye go and find the deal that will. 

You're on BP now and in the right place at least, some great people here.

 Best of luck with it!

Originally posted by @Jerry Mayer :

I am preparing to rehab my first project. It has plenty of profit in the deal. I need advice as to how to get 100% financing. I have no money to put into the deal but plan on putting 80% of all profit into saving for future deals. I have the time to put into this but not the cash. I have found plenty of profitable deals and wish to do 10-12 rehabs a year.

Any suggestions on how to get this deal with no personal money in?

 Partner with another investor, an experienced rehabber. You can project manage the deal for him in addition for finding it. Give 80% of the profit to him and 20% to you....but at least you get your first deal under your belt while learning and earning at the same time from someone with more experience than you.

Join the Largest Real Estate Investing Community

Basic membership is free, forever.