Investor · Nashville, TN · Member since 2009 · 483 posts · 228 votes
I am just getting started in the world of rehabs and would like to know how others got funding to do their rehabs when they first got started. I know everyone has to start somewhere so I am just looking for advice as how to get started.
I got started with HML and needed to bring close to 10% to the table and front the rehabs as well. So for me starting off, a good working capital to start with was $35-40k. Bring $15k or so to the table, front $10k-$15k to front the job for each phase and have some for reserves is kind of how I looked at it. I would venture to say rehabbing in my area would be hard to do without $30k or so in reserves if you take my route. Could be different for 203k or a partnership but for HML that would be about the lowest you could start with and most want to see reserves more than that.
Rehabbing is going to be tough without much money because not only do you need money to get into the deal (skin in the game) but you need money to front the rehab and keep it going. I know this wasn't your direct question, but the best way to do a rehab with no money out of your own pocket is to find a great deal and partner with somone. A great deal will probably be a non-MLS deal so you would have to spend some money marketing to find that great deal or know someone with a problem house. As much as people say you can rehab with little money out of your own pocket, it isn't true in my experience. You will need some money and cash reserves for the average deal and the money will have to come from somewhere (could be you, family, friends, or a partner).
It is going to be a challenge getting funding without SOME skin in the game. I have a couple of hard money lenders here that will fund up to 90% of the total costs(acquisition, holding, and renovation), but the last 10% still needs to come from my own pocket.
Another way I've heard some people get started is with an FHA 203k loan. That will only require ~3.5% down, but you will need to be buying as an owner occupant.
There are a number of other avenues... it would help to know a bit more about your situation.
Homepath renovation for certain Fannie Mae loans, 203k loans, and sometimes there are regional specific programs that allow for financing your first flip, outside of cash-flowing the renovations yourself.
It is going to be a challenge getting funding without SOME skin in the game. I have a couple of hard money lenders here that will fund up to 90% of the total costs(acquisition, holding, and renovation), but the last 10% still needs to come from my own pocket.
Another way I've heard some people get started is with an FHA 203k loan. That will only require ~3.5% down, but you will need to be buying as an owner occupant.
There are a number of other avenues... it would help to know a bit more about your situation.
I have some money for a down payment and a good credit score. I did have a repo on my account from 3 years ago and some charge-offs. The FHA 203k loan sounds like the road I would probably go down but are their any gov grants I could apply for? I ask because I was advised by an agent that I could get one.
You can partner with someone who has money. You find the deals and they give up the money. This may require you to give up a big share of the profits, but it's a good way to start. Are you active in your local REIA? If not that may be a place to go to find potential partners.
I got started with HML and needed to bring close to 10% to the table and front the rehabs as well. So for me starting off, a good working capital to start with was $35-40k. Bring $15k or so to the table, front $10k-$15k to front the job for each phase and have some for reserves is kind of how I looked at it. I would venture to say rehabbing in my area would be hard to do without $30k or so in reserves if you take my route. Could be different for 203k or a partnership but for HML that would be about the lowest you could start with and most want to see reserves more than that.
Rehabbing is going to be tough without much money because not only do you need money to get into the deal (skin in the game) but you need money to front the rehab and keep it going. I know this wasn't your direct question, but the best way to do a rehab with no money out of your own pocket is to find a great deal and partner with somone. A great deal will probably be a non-MLS deal so you would have to spend some money marketing to find that great deal or know someone with a problem house. As much as people say you can rehab with little money out of your own pocket, it isn't true in my experience. You will need some money and cash reserves for the average deal and the money will have to come from somewhere (could be you, family, friends, or a partner).
Derek is right on. You can wholesale without much capital, but rehabbing even with a"hard money" will require some working capital. Hard money lenders are loaning on the house, not on your credit, but they still require a certain credit score minimum (e.g., 680) and that you have some liquid funds (e.g., $25K, etc). And the numbers on your deal must be good or they won't fund it.
I've worked with one that required me to put up 1/2 the rehab dollars, so for example - $8,500 down. I had to bring that and the other closing costs (e.g., points on the loan) to the closing. But still, to be able to purchase and rehab a house with $10K or $11K down is not bad if there is the potential to make $20K to $30K when it's done & you sell it!