Funding for Rental Rehabs?

14 Replies

I came across a decent house that would make a great rental property well within the 2% rule after repairs... but it needs about 20k in repairs. 

Purchase price is around $14,000 (possibly cheaper if I renegotiate) but I wanted to know what my options were? 

Would a bank lend around $40,000 for purchase and repairs on a non-owner occupied property? If not, what's the next best thing? Do hard money lenders work with rental rehab deals and how would something like that work? 

My end goal would be to either keep it or flip it as a turn-key property.

Can you maybe do a HELOC or a home improvement loan on your own home?

That would give me half of what I need if I were to get 80% LTV

Some banks will go up to 90% LTV on heloc. But no bank will give you 40k on a 14 k house. That's not a ton of money so you might try friend and family.

Ah yes I remember that from one of the podcasts a while back. I'll look into those. 

I think may be hard on a property with that low of a price point through a bank.  Loan would be too small for most banks to find it worthwhile.  Peer to peer lending may work.

FYI, I've found a couple local banks will do a 75% acquisition, 100% rehab loan for around 6 months, then convert to 25 year amort loan with balloon in 5 years.

LOCAL banks are key- smaller the better.  Have to search around a lot.  I called, literally, around 18-22 banks.  But they do exist.

what do you say when you call? Who should I ask for?

Pay for it yourself.  It sucks, but it's better then owing someone. 

Check out homestyle loans. It's a Fani mae loan. You do need a 660 credit score, 20% down and they'll loan you the purchase price + rehab costs at 3.5-5 percent and 15-30 year fixed and they base the loan off of the ARV value not AS-IS value. They also don't care for the most part about what you want to rehab as long as it's within reason and adds value.

From what I hear they want the entire loan to be above 75k or it's not worth it to them.

I'm working on getting one now. 

There are draws and inspections by certified contractors involved... 


What is the ARV on the property? If you can get it for under 70% of the ARV then you have more options available to you. In general lenders have no problem lending on good deals.

@Michael Lerch  

As @Jonathan C. mentioned, call small local banks and ask for the commercial lending department. I did a deal once that was $45k purchase and $20k rehab, $110k ARV and they were plenty willing to do it. 25% down on the $45k purchase price, full documentation, good credit were required. 5.75% int 20 year amortization on the loan (non owner occupied)

Hope that helps!

- Tom

@Michael Lerch  yeah like @Tom S.  said- you want someone in commercial lending department, not residential mortgages.

When you call I'd say- I'm a real estate investor looking to see if you do purchase plus renovation cost loans on single family houses for investment purposes.  Ideally loans that can convert to some sort of longer term financing after the work is complete.  I think I'd probably want to talk to someone in your commercial lending area...  is that right?

sounds good! I'll definitely use that. I called about 4 banks so far an no go, but 2 I wasn't sure I was really talking to the right person. This should help. 

@Michael Lerch , did you have any success?

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